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BankUnited (BKU)

Filed: 3 Aug 21, 4:46pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                
For the quarterly period ended June 30, 2021
Commission File Number: 001-35039 

BankUnited, Inc.
(Exact name of registrant as specified in its charter)
Delaware27-0162450
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
14817 Oak LaneMiami LakesFL33016
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code: (305) 569-2000 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý  No  o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filerAccelerated filer ☐Emerging growth company
Non-accelerated filerSmaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐  No  ☒ 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 
ClassTrading SymbolName of Exchange on Which Registered
Common Stock, $0.01 Par ValueBKUNew York Stock Exchange

The number of outstanding shares of the registrant common stock, $0.01 par value, as of August 2, 2021 was 92,820,882.






BANKUNITED, INC.
Form 10-Q
For the Quarter Ended June 30, 2021
TABLE OF CONTENTS

i


GLOSSARY OF DEFINED TERMS

The following acronyms and terms may be used throughout this Form 10-Q, including the consolidated financial statements and related notes.
ACILoans acquired with evidence of deterioration in credit quality since origination (Acquired Credit Impaired)
ACLAllowance for credit losses
AFSAvailable for sale
ALCOAsset/Liability Committee
AOCIAccumulated other comprehensive income
APYAnnual Percentage Yield
ARMAdjustable rate mortgage
ASCAccounting Standards Codification
ASUAccounting Standards Update
BKUBankUnited, Inc.
BankUnitedBankUnited, National Association
The BankBankUnited, National Association
BridgeBridge Funding Group, Inc.
Buyout loansFHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CECLCurrent expected credit losses
CET1Common Equity Tier 1 capital
C&ICommercial and Industrial
CLOCollateralized loan obligations
CMBSCommercial mortgage-backed securities
CMEChicago Mercantile Exchange
CMOsCollateralized mortgage obligations
COVID-19Coronavirus disease of 2019
CRECommercial real estate
DFASTDodd-Frank Act Stress Test
DSCRDebt Service Coverage Ratio
EPSEarnings per common share
EVEEconomic value of equity
FASBFinancial Accounting Standards Board
FDIAFederal Deposit Insurance Act
FHAFederal Housing Administration
FHLBFederal Home Loan Bank
FICOFair Isaac Corporation (credit score)
FRBFederal Reserve Bank
GAAPU.S. generally accepted accounting principles
GDPGross Domestic Product
GLB ActThe Gramm-Leach-Bliley Financial Modernization Act of 1999
GNMAGovernment National Mortgage Association
HPIHome price indices
HTMHeld to maturity
IPOInitial public offering
ISDAInternational Swaps and Derivatives Association
ii


LGDLoss Given Default
LIBORLondon InterBank Offered Rate
LTVLoan-to-value
MBSMortgage-backed securities
MSAMetropolitan Statistical Area
MSLFFederal Reserve Main Street Lending Facility
MWLMortgage warehouse lending
Non-OOCRENon-owner occupied commercial real estate
NRSRONationally recognized statistical rating organization
OCIOther comprehensive income
OOCREOwner occupied commercial real estate
OREOOther real estate owned
PCDPurchased credit-deteriorated
PDProbability of default
PinnaclePinnacle Public Finance, Inc.
PPNRPre-tax, pre-provision net revenue
PPPSmall Business Administration’s Paycheck Protection Program
PPPLFFRB Paycheck Protection Program Liquidity Facility
PSUPerformance Share Unit
REITReal Estate Investment Trust
RSURestricted Share Unit
SBAU.S. Small Business Administration
SECSecurities and Exchange Commission
S&P 500Standard & Poor's 500 Index
TDRTroubled-debt restructuring
Tri-StateNew York, New Jersey and Connecticut
UPBUnpaid principal balance
VA loanLoan guaranteed by the U.S. Department of Veterans Affairs
VIXCBOE Volatility Index
WARMWeighted-average remaining maturity

iii


PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements and Supplementary Data
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands, except share and per share data)
June 30,
2021
December 31,
2020
ASSETS  
Cash and due from banks:  
Non-interest bearing$17,902 $20,233 
Interest bearing877,446 377,483 
Cash and cash equivalents895,348 397,716 
Investment securities (including securities recorded at fair value of $10,222,035 and $9,166,683)10,232,035 9,176,683 
Non-marketable equity securities164,959 195,865 
Loans held for sale24,676 
Loans22,885,074 23,866,042 
Allowance for credit losses(175,642)(257,323)
Loans, net22,709,432 23,608,719 
Bank owned life insurance303,519 294,629 
Operating lease equipment, net667,935 663,517 
Goodwill77,637 77,637 
Other assets649,422 571,051 
Total assets$35,700,287 $35,010,493 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Liabilities:  
Demand deposits:  
Non-interest bearing$8,834,228 $7,008,838 
Interest bearing3,218,441 3,020,039 
Savings and money market13,578,526 12,659,740 
Time2,978,074 4,807,199 
Total deposits28,609,269 27,495,816 
Federal funds purchased180,000 
FHLB advances2,681,505 3,122,999 
Notes and other borrowings721,639 722,495 
Other liabilities526,331 506,171 
Total liabilities32,538,744 32,027,481 
Commitments and contingencies00
Stockholders' equity:  
Common stock, par value $0.01 per share, 400,000,000 shares authorized; 93,238,553 and 93,067,500 shares issued and outstanding932 931 
Paid-in capital1,011,786 1,017,518 
Retained earnings2,173,698 2,013,715 
Accumulated other comprehensive loss(24,873)(49,152)
Total stockholders' equity3,161,543 2,983,012 
Total liabilities and stockholders' equity$35,700,287 $35,010,493 
 
1
The accompanying notes are an integral part of these consolidated financial statements





BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share data)
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Interest income:  
Loans$202,520 $213,938 $407,855 $448,297 
Investment securities37,674 50,932 76,175 106,992 
Other1,607 2,908 3,200 6,628 
Total interest income241,801 267,778 487,230 561,917 
Interest expense:
Deposits17,316 50,187 39,692 133,009 
Borrowings26,174 27,254 52,987 57,995 
Total interest expense43,490 77,441 92,679 191,004 
Net interest income before provision for credit losses198,311 190,337 394,551 370,913 
Provision for (recovery of) credit losses(27,534)25,414 (55,523)150,842 
Net interest income after provision for credit losses225,845 164,923 450,074 220,071 
Non-interest income:
Deposit service charges and fees5,417 3,701 10,317 7,887 
Gain on sale of loans, net2,234 4,326 3,988 7,792 
Gain on investment securities, net4,155 6,836 6,520 3,383 
Lease financing13,522 16,150 26,010 31,631 
Other non-interest income7,429 7,338 16,218 10,956 
Total non-interest income32,757 38,351 63,053 61,649 
Non-interest expense:
Employee compensation and benefits56,459 48,877 115,747 107,764 
Occupancy and equipment11,492 11,901 23,367 24,270 
Deposit insurance expense4,222 4,806 11,672 9,209 
Professional fees2,139 3,131 4,051 6,335 
Technology and telecommunications16,851 14,025 32,592 26,621 
Depreciation of operating lease equipment12,834 12,219 25,051 24,822 
Other non-interest expense14,455 11,411 29,193 26,217 
Total non-interest expense118,452 106,370 241,673 225,238 
Income before income taxes140,150 96,904 271,454 56,482 
Provision for income taxes36,176 20,396 68,666 10,925 
Net income$103,974 $76,508 $202,788 $45,557 
Earnings per common share, basic$1.12 $0.80 $2.18 $0.47 
Earnings per common share, diluted$1.11 $0.80 $2.17 $0.47 
2
The accompanying notes are an integral part of these consolidated financial statements





BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
(In thousands)
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Net income$103,974 $76,508 $202,788 $45,557 
Other comprehensive income (loss), net of tax: 
Unrealized gains (losses) on investment securities available for sale: 
Net unrealized holding gain (loss) arising during the period13,926 188,405 (8,559)(24,755)
Reclassification adjustment for net securities gains realized in income(2,118)(4,264)(5,073)(5,404)
Net change in unrealized gains (losses) on securities available for sale11,808 184,141 (13,632)(30,159)
Unrealized losses on derivative instruments: 
Net unrealized holding gain (loss) arising during the period(8,944)(11,070)15,667 (91,884)
Reclassification adjustment for net losses realized in income11,088 7,502 22,244 10,851 
Net change in unrealized losses on derivative instruments2,144 (3,568)37,911 (81,033)
Other comprehensive income (loss)13,952 180,573 24,279 (111,192)
Comprehensive income (loss)$117,926 $257,081 $227,067 $(65,635)

3
The accompanying notes are an integral part of these consolidated financial statements



BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)

 Six Months Ended June 30,
 20212020
Cash flows from operating activities:  
Net income$202,788 $45,557 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization and accretion, net(15,124)(11,590)
Provision for (recovery of) credit losses(55,523)150,842 
Gain on sale of loans, net(3,988)(7,792)
Gain on investment securities, net(6,520)(3,383)
Equity based compensation12,414 7,351 
Depreciation and amortization37,089 35,691 
Deferred income taxes1,218 (769)
Proceeds from sale of loans held for sale455,996 369,807 
Loans originated for sale, net of repayments(17,681)
Other:
Increase in other assets(132,384)(23,101)
(Decrease) increase in other liabilities81,833 (224,093)
Net cash provided by operating activities577,799 320,839 
Cash flows from investing activities:  
Purchase of investment securities(3,145,279)(2,263,847)
Proceeds from repayments and calls of investment securities1,265,922 587,139 
Proceeds from sale of investment securities800,056 547,337 
Purchase of non-marketable equity securities(1,200)(128,562)
Proceeds from redemption of non-marketable equity securities32,106 149,175 
Purchases of loans(2,271,081)(1,085,437)
Loan originations and repayments, net2,638,153 68,012 
Proceeds from sale of loans, net183,263 11,604 
Acquisition of operating lease equipment(38,875)(19,118)
Other investing activities(5,183)(10,663)
Net cash used in investing activities(542,118)(2,144,360)
4
The accompanying notes are an integral part of these consolidated financial statements



BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)



 Six Months Ended June 30,
 20212020
Cash flows from financing activities:  
Net increase in deposits1,113,453 1,675,833 
Net decrease in federal funds purchased(180,000)
Additions to FHLB and PPPLF borrowings1,106,000 3,762,336 
Repayments of FHLB and PPPLF borrowings(1,545,999)(3,596,310)
Proceeds from issuance of notes, net293,858 
Dividends paid(43,714)(42,702)
Repurchase of common stock(7,263)(100,972)
Other financing activities19,474 19,036 
Net cash provided by financing activities461,951 2,011,079 
Net increase in cash and cash equivalents497,632 187,558 
Cash and cash equivalents, beginning of period397,716 214,673 
Cash and cash equivalents, end of period$895,348 $402,231 
Supplemental disclosure of cash flow information:
Interest paid$94,782 $209,233 
Income taxes paid, net$236,491 $4,883 
Supplemental schedule of non-cash investing and financing activities:
Unsettled sale of loans$$11,058 
Transfers from loans to loans held for sale$611,568 $329,308 
Dividends declared, not paid$21,400 $21,909 
Unsettled investment securities trades, net$$174,788 



5
The accompanying notes are an integral part of these consolidated financial statements





BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
(In thousands, except share data)

 Common
Shares
Outstanding
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Balance at March 31, 202193,263,632 $933 $1,008,603 $2,091,124 $(38,825)$3,061,835 
Comprehensive income— — — 103,974 13,952 117,926 
Dividends ($0.23 per common share)— — — (21,400)— (21,400)
Equity based compensation19,469 3,211 — — 3,211 
Forfeiture of unvested shares and shares surrendered for tax withholding obligations(44,548)(1)(28)— — (29)
Balance at June 30, 202193,238,553 $932 $1,011,786 $2,173,698 $(24,873)$3,161,543 
Balance at March 31, 202092,406,294 $924 $987,757 $1,851,040 $(323,592)$2,516,129 
Comprehensive income— — — 76,508 180,573 257,081 
Dividends ($0.23 per common share)— — — (21,909)— (21,909)
Equity based compensation56,688 3,762 — — 3,763 
Forfeiture of unvested shares and shares surrendered for tax withholding obligations(42,704)(1)(10)— — (11)
Balance at June 30, 202092,420,278 $924 $991,509 $1,905,639 $(143,019)$2,755,053 
 Common
Shares
Outstanding
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Balance at December 31, 202093,067,500 $931 $1,017,518 $2,013,715 $(49,152)$2,983,012 
Comprehensive income— — — 202,788 24,279 227,067 
Dividends ($0.46 per common share)— — — (42,805)— (42,805)
Equity based compensation559,180 7,218 — — 7,223 
Forfeiture of unvested shares and shares surrendered for tax withholding obligations(184,632)(2)(5,714)— — (5,716)
Exercise of stock options1,569 — 25 — — 25 
Repurchase of common stock(205,064)(2)(7,261)— — (7,263)
Balance at June 30, 202193,238,553 $932 $1,011,786 $2,173,698 $(24,873)$3,161,543 
Balance at December 31, 201995,128,231 $951 $1,083,920 $1,927,735 $(31,827)$2,980,779 
Impact of adoption of ASU 2016-13— — — (23,817)— (23,817)
Balance at January 1, 202095,128,231 951 1,083,920 1,903,918 (31,827)2,956,962 
Comprehensive loss— — — 45,557 (111,192)(65,635)
Dividends ($0.46 per common share)— — — (43,836)— (43,836)
Equity based compensation743,696 11,428 — — 11,436 
Forfeiture of unvested shares and shares surrendered for tax withholding obligations(186,072)(3)(4,428)— — (4,431)
Exercise of stock options60,000 1,528 — — 1,529 
Repurchase of common stock(3,325,577)(33)(100,939)— — (100,972)
Balance at June 30, 202092,420,278 $924 $991,509 $1,905,639 $(143,019)$2,755,053 
6
The accompanying notes are an integral part of these consolidated financial statements

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021



Note 1    Basis of Presentation and Summary of Significant Accounting Policies
BankUnited, Inc. is a national bank holding company with one wholly-owned subsidiary, BankUnited, collectively, the Company. BankUnited, a national banking association headquartered in Miami Lakes, Florida, provides a full range of banking and related services to individual and corporate customers through 65 banking centers located in 13 Florida counties and 4 banking centers located in the New York metropolitan area at June 30, 2021. The Bank also offers certain commercial lending and deposit products through national platforms.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, these do not include all of the information and footnotes required for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP and should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in BKU’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected in future periods. 
Accounting Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and disclosures of contingent assets and liabilities. Actual results could differ significantly from these estimates.
The most significant estimate impacting the Company's consolidated financial statements is the ACL.
New Accounting Pronouncements Adopted During the Six Months Ended June 30, 2021
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions stipulated in ASC 740 and making some other targeted changes to the accounting for income taxes. The Company adopted this ASU on January 1, 2021 with no material impact on the Company’s consolidated financial position, results of operations, and cash flows.
ASU No. 2021-01, Reference Rate Reform (Topic 848). This ASU clarifies that certain optional expedients and exceptions provided for in ASU No. 2020-04 for applying GAAP to contract modifications and hedging relationships apply to derivatives that are affected by the discounting transition. The amendments in this ASU are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The Company elected to adopt this ASU on a retrospective basis. The impact of adoption of this ASU on the Company's consolidated financial position, results of operations, and cash flows was not material.
Accounting Pronouncements Not Yet Adopted
ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for convertible debt and convertible preferred stock by reducing the number of accounting models for these instruments, resulting in fewer embedded conversion features being separately recognized from the host contract. Additionally, this ASU revises the criteria for determining whether contracts in an entity's own equity meet the scope exception from derivative accounting, which will change the population of contracts that are recognized as assets or liabilities. The amendments in this ASU also revise certain aspects of the guidance on calculating earnings per share with respect to convertible instruments and instruments that may be settled in the entity's own shares. This ASU is effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2021. The Company has not finalized its evaluation of the impact of adoption on its consolidated financial position, results of operations, and cash flows, but the impact is not currently expected to be material.
7

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


Note 2    Earnings Per Common Share
The computation of basic and diluted earnings per common share is presented below for the periods indicated (in thousands, except share and per share data):
Three Months Ended June 30,Six Months Ended June 30,
c2021202020212020
Basic earnings per common share: 
Numerator: 
Net income$103,974 $76,508 $202,788 $45,557 
Distributed and undistributed earnings allocated to participating securities(1,338)(3,353)(2,589)(1,939)
Income allocated to common stockholders for basic earnings per common share$102,636 $73,155 $200,199 $43,618 
Denominator:
Weighted average common shares outstanding93,245,282 92,409,949 93,160,962 93,177,243 
Less average unvested stock awards(1,241,381)(1,207,798)(1,223,555)(1,154,589)
Weighted average shares for basic earnings per common share92,003,901 91,202,151 91,937,407 92,022,654 
Basic earnings per common share$1.12 $0.80 $2.18 $0.47 
Diluted earnings per common share:
Numerator:
Income allocated to common stockholders for basic earnings per common share$102,636 $73,155 $200,199 $43,618 
Adjustment for earnings reallocated from participating securities
Income used in calculating diluted earnings per common share$102,638 $73,155 $200,202 $43,618 
Denominator:
Weighted average shares for basic earnings per common share92,003,901 91,202,151 91,937,407 92,022,654 
Dilutive effect of stock options and certain shared-based awards181,061 705 137,542 126,858 
Weighted average shares for diluted earnings per common share92,184,962 91,202,856 92,074,949 92,149,512 
Diluted earnings per common share$1.11 $0.80 $2.17 $0.47 
Potentially dilutive unvested shares and share units totaling 1,212,062 and 1,743,403 were outstanding at June 30, 2021 and 2020, respectively, but excluded from the calculation of diluted earnings per common share because their inclusion would have been anti-dilutive.
Participating securities for the three and six months ended June 30, 2020 include 3,023,314 dividend equivalent rights that were issued in conjunction with the IPO of the Company's common stock. These dividend equivalent rights expired in February 2021 and, while outstanding, participated in dividends on a one-for-one basis.
8

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


Note 3    Investment Securities
Investment securities include investment securities available for sale, marketable equity securities, and investment securities held to maturity. The investment securities portfolio consisted of the following at the dates indicated (in thousands):
June 30, 2021
 Amortized CostGross Unrealized
Carrying Value (1)
 GainsLosses
Investment securities available for sale:
U.S. Treasury securities$158,977 $469 $(2,809)$156,637 
U.S. Government agency and sponsored enterprise residential MBS2,197,562 22,257 (4,379)2,215,440 
U.S. Government agency and sponsored enterprise commercial MBS831,726 8,564 (4,702)835,588 
Private label residential MBS and CMOs2,104,579 9,475 (2,327)2,111,727 
Private label commercial MBS2,579,963 18,530 (4,469)2,594,024 
Single family rental real estate-backed securities608,269 9,961 (785)617,445 
Collateralized loan obligations986,214 269 (4,216)982,267 
Non-mortgage asset-backed securities172,791 3,715 176,506 
State and municipal obligations209,791 18,834 228,625 
SBA securities216,682 2,244 (3,292)215,634 
10,066,554 $94,318 $(26,979)10,133,893 
Investment securities held to maturity10,000 10,000 
$10,076,554 10,143,893 
Marketable equity securities88,142 
$10,232,035 
9

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021



December 31, 2020
 Amortized CostGross Unrealized
Carrying Value (1)
 GainsLosses
Investment securities available for sale:
U.S. Treasury securities$79,919 $1,307 $(375)$80,851 
U.S. Government agency and sponsored enterprise residential MBS2,389,450 19,148 (3,028)2,405,570 
U.S. Government agency and sponsored enterprise commercial MBS531,724 9,297 (1,667)539,354 
Private label residential MBS and CMOs982,890 16,274 (561)998,603 
Private label commercial MBS(2)
2,514,271 24,931 (12,848)2,526,354 
Single family rental real estate-backed securities636,069 14,877 (58)650,888 
Collateralized loan obligations1,148,724 285 (8,735)1,140,274 
Non-mortgage asset-backed securities246,597 6,898 (234)253,261 
State and municipal obligations213,743 21,966 235,709 
SBA securities233,387 2,093 (3,935)231,545 
 8,976,774 $117,076 $(31,441)9,062,409 
Investment securities held to maturity10,000 10,000 
$8,986,774 9,072,409 
Marketable equity securities104,274 
$9,176,683 
(1)At fair value except for securities held to maturity.
(2)Amortized cost is net of ACL totaling $0.4 million at December 31, 2020.
Investment securities held to maturity at June 30, 2021 and December 31, 2020 consisted of 1 State of Israel bond maturing in 2024. Accrued interest receivable on investments totaled $17 million at both June 30, 2021 and December 31, 2020, and is included in other assets in the accompanying consolidated balance sheets.
At June 30, 2021, contractual maturities of investment securities available for sale, adjusted for anticipated prepayments when applicable, were as follows (in thousands):
Amortized CostFair Value
Due in one year or less$1,463,157 $1,468,146 
Due after one year through five years6,199,918 6,245,085 
Due after five years through ten years1,971,729 1,984,142 
Due after ten years431,750 436,520 
 $10,066,554 $10,133,893 
The carrying value of securities pledged as collateral for FHLB advances, public deposits, interest rate swaps and to secure borrowing capacity at the FRB totaled $4.1 billion at both June 30, 2021 and December 31, 2020.
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The following table provides information about gains and losses on investment securities for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Proceeds from sale of investment securities AFS$389,814 $240,805 $800,056 $547,337 
Gross realized gains on investment securities AFS$2,870 $5,723 $6,862 $7,255 
Gross realized losses on investment securities AFS(29)(54)(2)
Net realized gain2,841 5,723 6,808 7,253 
Net unrealized gains (losses) on marketable equity securities recognized in earnings1,314 1,113 (288)(3,870)
Gain on investment securities, net$4,155 $6,836 $6,520 $3,383 
The following tables present the aggregate fair value and the aggregate amount by which amortized cost exceeded fair value for investment securities available for sale in unrealized loss positions aggregated by investment category and length of time that individual securities had been in continuous unrealized loss positions at the dates indicated (in thousands):
 June 30, 2021
 Less than 12 Months12 Months or GreaterTotal
 Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities$121,096 $(2,809)$$$121,096 $(2,809)
U.S. Government agency and sponsored enterprise residential MBS287,258 (1,161)367,303 (3,218)654,561 (4,379)
U.S. Government agency and sponsored enterprise commercial MBS234,214 (4,369)84,177 (333)318,391 (4,702)
Private label residential MBS and CMOs597,907 (2,327)597,907 (2,327)
Private label commercial MBS400,800 (3,019)278,005 (1,450)678,805 (4,469)
Single family rental real estate-backed securities122,180 (785)122,180 (785)
Collateralized loan obligations565,872 (4,216)565,872 (4,216)
SBA securities120,630 (3,292)120,630 (3,292)
 $1,763,455 $(14,470)$1,415,987 $(12,509)$3,179,442 $(26,979)
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 December 31, 2020
 Less than 12 Months12 Months or GreaterTotal
 Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities$24,369 $(375)$$$24,369 $(375)
U.S. Government agency and sponsored enterprise residential MBS220,179 (320)370,727 (2,708)590,906 (3,028)
U.S. Government agency and sponsored enterprise commercial MBS152,233 (1,412)44,255 (255)196,488 (1,667)
Private label residential MBS and CMOs141,407 (561)141,407 (561)
Private label commercial MBS1,268,381 (12,771)37,783 (77)1,306,164 (12,848)
Single family rental real estate-backed securities28,758 (58)28,758 (58)
Collateralized loan obligations304,051 (1,171)588,463 (7,564)892,514 (8,735)
Non-mortgage asset-backed securities12,327 (234)12,327 (234)
SBA securities26,240 (298)104,598 (3,637)130,838 (3,935)
 $2,165,618 $(16,966)$1,158,153 $(14,475)$3,323,771 $(31,441)
The Company monitors its investment securities available for sale for credit loss impairment on an individual security basis. No securities were determined to be credit loss impaired during the three and six months ended June 30, 2021 and 2020. At June 30, 2021, the Company did not have an intent to sell securities that were in significant unrealized loss positions and it was not more likely than not that the Company would be required to sell these securities before recovery of the amortized cost basis, which may be at maturity. In making this determination, the Company considered its current and projected liquidity position, its investment policy as to permissible holdings and concentration limits, regulatory requirements and other relevant factors.
At June 30, 2021, 158 securities available for sale were in unrealized loss positions. The unrealized losses are primarily attributable to changes in interest rates and, in some cases, volatility in the financial markets since their purchase. The amount of impairment related to 51 of these securities was considered insignificant both individually and in the aggregate, totaling approximately $0.4 million and no further analysis with respect to these securities was considered necessary.
For U.S. Government, U.S. government agency and U.S. government sponsored enterprise securities, the timely payment of principal and interest is explicitly or implicitly guaranteed by the U.S. Government. As such, there is an assumption of zero credit loss and the Company expects to recover the entire amortized cost basis of these securities. For all other AFS securities in a significant unrealized loss position, the Company performed an analysis by first determining the present value of cash flows expected to be collected, based on stressed economic scenarios more severe than our reasonable and supportable economic forecast. The present value was then compared to the amortized cost basis to identify possible impairment. The economic forecast scenario used for evaluation of impaired securities incorporates assumptions about voluntary prepayment rates, collateral defaults, delinquencies, severity, recovery lag and other relevant factors.
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Note 4    Loans and Allowance for Credit Losses
Loans consisted of the following at the dates indicated (dollars in thousands):
 June 30, 2021December 31, 2020
 TotalPercent of TotalTotalPercent of Total
Residential and other consumer:    
1-4 single family residential$5,206,766 22.8 %$4,922,836 20.6 %
Government insured residential1,863,723 8.1 %1,419,074 5.9 %
Other consumer loans5,785 %6,312 0.1 %
 7,076,274 30.9 %6,348,222 26.6 %
Commercial:
Multi-family1,256,711 5.5 %1,639,201 6.9 %
Non-owner occupied commercial real estate4,724,183 20.7 %4,963,273 20.8 %
Construction and land218,634 1.0 %293,307 1.2 %
Owner occupied commercial real estate1,960,900 8.6 %2,000,770 8.4 %
Commercial and industrial4,205,795 18.4 %4,447,383 18.6 %
PPP491,960 2.1 %781,811 3.3 %
Pinnacle1,046,537 4.6 %1,107,386 4.6 %
Bridge - franchise finance463,874 2.0 %549,733 2.3 %
Bridge - equipment finance421,939 1.8 %475,548 2.0 %
Mortgage warehouse lending1,018,267 4.4 %1,259,408 5.3 %
 15,808,800 69.1 %17,517,820 73.4 %
Total loans22,885,074 100.0 %23,866,042 100.0 %
Allowance for credit losses(175,642)(257,323)
Loans, net$22,709,432 $23,608,719 
Premiums, discounts and deferred fees and costs, excluding the non-credit related discount on PCD loans, totaled $46 million and $39 million at June 30, 2021 and December 31, 2020, respectively. The amortized cost basis of residential PCD loans and the related amount of non-credit discount was $100 million and $95 million, respectively at June 30, 2021 and $118 million and $115 million, respectively at December 31, 2020. The ACL related to PCD residential loans was $1.2 million and $2.8 million at June 30, 2021 and December 31, 2020, respectively.
Included in the table above are direct or sales type finance leases totaling $665 million and $670 million at June 30, 2021 and December 31, 2020, respectively. The amount of income recognized from direct or sales type finance leases for the three and six months ended June 30, 2021 and 2020 totaled $4.5 million, $9.9 million, $5.3 million and $10.7 million, respectively and is recorded as interest income on loans in the consolidated statements of income.
During the three and six months ended June 30, 2021 and 2020, the Company purchased 1-4 single family residential loans totaling $1.3 billion, $2.3 billion, $582 million and $1.1 billion, respectively. Purchases for the three and six months ended June 30, 2021 and 2020 included $578 million, $973 million, $243 million and $529 million, respectively, of government insured residential loans.
At June 30, 2021 and December 31, 2020, the Company had pledged loans with a carrying value of approximately $9.5 billion and $9.6 billion, respectively, as security for FHLB advances and Federal Reserve discount window capacity.
At June 30, 2021 and December 31, 2020, accrued interest receivable on loans, net of related ACL at December 31, 2020, totaled $97 million and $99 million, respectively, and is included in other assets in the accompanying consolidated balance sheets. The amount of interest income reversed on non-accrual loans was not material for the three and six months ended June 30, 2021 and 2020.
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Allowance for credit losses
The ACL was determined utilizing a 2-year reasonable and supportable forecast period based on a single economic scenario. Activity in the ACL is summarized below for the periods indicated (in thousands):
Three Months Ended June 30,
 20212020
 Residential and Other ConsumerCommercialTotalResidential and Other ConsumerCommercialTotal
Beginning balance$15,844 $205,090 $220,934 $12,576 $238,003 $250,579 
Provision (recovery)(3,938)(23,725)(27,663)(1,924)33,508 31,584 
Charge-offs(18,402)(18,402)(19,178)(19,178)
Recoveries770 773 43 3,095 3,138 
Ending balance$11,909 $163,733 $175,642 $10,695 $255,428 $266,123 
Six Months Ended June 30,
 20212020
 Residential and Other ConsumerCommercialTotalResidential and Other ConsumerCommercialTotal
Beginning balance$18,719 $238,604 $257,323 $11,154 $97,517 $108,671 
Impact of adoption of ASU 2016-138,098 19,207 27,305 
Balance after adoption of ASU 2016-1318,719 238,604 257,323 19,252 116,724 135,976 
Provision (recovery)(6,802)(47,167)(53,969)(8,572)162,021 153,449 
Charge-offs(14)(30,380)(30,394)(31)(26,953)(26,984)
Recoveries2,676 2,682 46 3,636 3,682 
Ending balance$11,909 $163,733 $175,642 $10,695 $255,428 $266,123 
The decrease in the ACL from December 31, 2020 to June 30, 2021 related primarily to the recovery of credit losses recorded during the six months ended June 30, 2021. The most significant factor contributing to the recovery of provision was an improving economic forecast. The increase in the ACL from January 1, 2020, the date of initial adoption of ASU 2016-13, to June 30, 2020 was reflective of the impact of the COVID-19 pandemic on current economic conditions, the economic forecast and on individual borrowers and portfolio sub-segments.
The following table presents the components of the provision for credit losses for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Amount related to funded portion of loans$(27,663)$31,584 $(53,969)$153,449 
Amount related to off-balance sheet credit exposures129 (6,170)(919)(2,607)
Amount related to accrued interest receivable(271)
Amount related to AFS debt securities(364)
Total provision for (recovery of) credit losses$(27,534)$25,414 $(55,523)$150,842 
Credit quality information
The credit quality of the loan portfolio has been and may continue to be impacted by the COVID-19 crisis, its impact on the economy broadly and more specifically on the Company's individual borrowers. While economic conditions continue to improve, some level of uncertainty continues to exist about the full extent of this impact and the trajectory of recovery. The ultimate impact may not be fully reflected in some of the credit quality indicators disclosed below. Delinquency statistics may not be fully reflective of the impact of the COVID-19 crisis due to deferral and modification programs offered to affected borrowers.
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Credit quality of loans held for investment is continuously monitored by dedicated residential credit risk management and commercial portfolio management functions. The Company also has a workout and recovery department that monitors the credit quality of criticized and classified loans and an independent internal credit review function.
Credit quality indicators for residential loans
Management considers delinquency status to be the most meaningful indicator of the credit quality of residential and other consumer loans, other than government insured residential loans. Delinquency statistics are updated at least monthly. LTV and FICO scores are also important indicators of credit quality for 1-4 single family residential loans other than government insured loans. FICO scores are generally updated at least annually, and were most recently updated in the first quarter of 2021. LTVs are typically at origination since we do not routinely update residential appraisals. Substantially all of the government insured residential loans are government insured buyout loans, which the Company buys out of GNMA securitizations upon default. For these loans, traditional measures of credit quality are not particularly relevant considering the guaranteed nature of the loans and the underlying business model. Factors that impact risk inherent in the residential portfolio segment include national and regional economic conditions such as levels of unemployment and wages, as well as residential property values.
1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on delinquency status: 
June 30, 2021
Amortized Cost By Origination Year
20212020201920182017PriorTotal
Current$1,083,253 $1,189,810 $473,427 $279,499 $441,586 $1,660,924 $5,128,499 
30 - 59 Days Past Due15,148 7,150 9,631 3,635 3,848 6,086 45,498 
60 - 89 Days Past Due922 3,229 812 1,082 3,300 9,345 
90 Days or More Past Due1,702 5,144 851 15,727 23,424 
$1,098,401 $1,197,882 $487,989 $289,090 $447,367 $1,686,037 $5,206,766 
December 31, 2020
Amortized Cost By Origination Year
20202019201820172016PriorTotal
Current$1,092,183 $645,993 $374,838 $611,377 $740,749 $1,392,192 $4,857,332 
30 - 59 Days Past Due17,826 5,741 2,564 927 2,913 18,880 48,851 
60 - 89 Days Past Due111 145 435 2,825 3,973 7,489 
90 Days or More Past Due807 1,762 53 1,027 5,515 9,164 
$1,110,120 $652,686 $379,599 $612,357 $747,514 $1,420,560 $4,922,836 

1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on LTV: 
June 30, 2021
Amortized Cost By Origination Year
LTV20212020201920182017PriorTotal
Less than 61%$419,732 $437,986 $108,821 $68,019 $138,073 $588,791 $1,761,422 
61% - 70%296,621 317,275 114,771 71,726 88,144 425,875 1,314,412 
71% - 80%381,806 441,154 255,015 135,047 185,034 637,249 2,035,305 
More than 80%242 1,467 9,382 14,298 36,116 34,122 95,627 
$1,098,401 $1,197,882 $487,989 $289,090 $447,367 $1,686,037 $5,206,766 
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June 30, 2021


December 31, 2020
Amortized Cost By Origination Year
LTV20202019201820172016PriorTotal
Less than 61%$395,977 $143,273 $82,199 $174,223 $286,092 $487,487 $1,569,251 
61% - 70 %298,941 151,633 92,928 119,381 184,119 341,159 1,188,161 
71% - 80%413,003 344,998 181,852 271,605 258,931 565,781 2,036,170 
More than 80%2,199 12,782 22,620 47,148 18,372 26,133 129,254 
$1,110,120 $652,686 $379,599 $612,357 $747,514 $1,420,560 $4,922,836 

1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on FICO score:
June 30, 2021
Amortized Cost By Origination Year
FICO20212020201920182017PriorTotal
760 or greater$876,798 $885,583 $314,923 $167,341 $314,717 $1,140,630 $3,699,992 
720 - 759185,830 227,976 99,444 59,330 80,474 304,170 957,224 
719 or less35,773 84,323 73,622 62,419 52,176 241,237 549,550 
$1,098,401 $1,197,882 $487,989 $289,090 $447,367 $1,686,037 $5,206,766 
December 31, 2020
Amortized Cost By Origination Year
FICO20202019201820172016PriorTotal
760 or greater$843,199 $435,582 $225,292 $451,304 $549,119 $956,254 $3,460,750 
720 - 759223,831 128,875 84,602 102,859 130,592 256,703 927,462 
719 or less43,090 88,229 69,705 58,194 67,803 207,603 534,624 
$1,110,120 $652,686 $379,599 $612,357 $747,514 $1,420,560 $4,922,836 

Credit quality indicators for commercial loans
Factors that impact risk inherent in commercial portfolio segments include but are not limited to levels of economic activity, health of the national and regional economy, industry trends, patterns of and trends in customer behavior that influence demand for our borrowers' products and services, and commercial real estate values. Internal risk ratings are considered the most meaningful indicator of credit quality for commercial loans. Internal risk ratings are generally indicative of the likelihood that a borrower will default, are a key factor influencing the level and nature of ongoing monitoring of loans and may impact the estimation of the ACL. Internal risk ratings are updated on a continuous basis. Generally, relationships with balances in excess of defined thresholds, ranging from $1 million to $3 million, are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. Since the onset of the COVID-19 pandemic, risk ratings have been re-evaluated for a substantial portion of the commercial portfolio, with a focus on portfolio segments we identified for enhanced monitoring and loans that have been modified or for which we granted temporary payment deferrals. Loans exhibiting potential credit weaknesses that deserve management’s close attention and that could result in deterioration of repayment prospects at some future date if not checked or corrected are categorized as special mention. Loans with well-defined credit weaknesses, including payment defaults, declining collateral values, frequent overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow from current operations, project cost overruns, unreasonable construction delays, past due real estate taxes or exhausted interest reserves, are assigned an internal risk rating of substandard. A loan with a weakness so severe that collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors has not been charged off, will be assigned an internal risk rating of doubtful. 
Commercial credit exposure based on internal risk rating:
June 30, 2021
Amortized Cost By Origination YearRevolving Loans
20212020201920182017PriorTotal
Multi-Family
Pass$31,965 $147,499 $245,838 $153,168 $145,093 $274,242 $40,238 $1,038,043 
Special mention4,258 1,827 6,085 
Substandard5,002 42,938 9,599 32,186 122,858 212,583 
Total Multi-Family$31,965 $152,501 $288,776 $167,025 $177,279 $398,927 $40,238 $1,256,711 
Non-owner occupied commercial real estate
Pass$213,043 $526,381 $1,057,193 $631,119 $424,389 $1,016,555 $79,761 $3,948,441 
Special mention24,604 15,662 7,641 47,907 
Substandard26,021 146,339 73,142 84,622 397,711 727,835 
Total non-owner occupied commercial real estate$213,043 $552,402 $1,228,136 $719,923 $509,011 $1,421,907 $79,761 $4,724,183 
Construction and Land
Pass$3,919 $34,832 $136,272 $10,611 $8,605 $268 $4,840 $199,347 
Special mention5,184 5,184 
Substandard1,167 2,539 1,328 9,069 14,103 
Total Construction and Land$3,919 $35,999 $143,995 $11,939 $8,605 $9,337 $4,840 $218,634 
Owner occupied commercial real estate
Pass$51,923 $228,037 $285,963 $236,599 $246,368 $596,121 $28,222 $1,673,233 
Special mention1,796 2,388 3,908 13,628 19,409 794 41,923 
Substandard6,902 29,021 37,616 46,835 125,370 245,744 
Total owner occupied commercial real estate$51,923 $236,735 $317,372 $278,123 $306,831 $740,900 $29,016 $1,960,900 
Commercial and industrial
Pass$363,731 $506,653 $647,392 $184,745 $197,346 $194,549 $1,676,514 $3,770,930 
Special mention937 11,257 16,640 1,611 2,481 438 33,364 
Substandard480 19,291 144,079 42,028 14,278 35,315 129,176 384,647 
Doubtful16,846 16,854 
Total commercial and industrial$364,211 $526,881 $802,728 $243,421 $213,235 $232,345 $1,822,974 $4,205,795 
PPP
Pass$282,746 $209,214 $$$$$$491,960 
Total PPP$282,746 $209,214 $$$$$$491,960 
Pinnacle
Pass$67,425 $141,124 $106,430 $61,798 $202,771 $466,989 $$1,046,537 
Total Pinnacle$67,425 $141,124 $106,430 $61,798 $202,771 $466,989 $$1,046,537 
Bridge - Franchise Finance
Pass$9,078 $51,732 $114,668 $16,475 $7,861 $10,133 $$209,947 
Special mention1,857 1,857 
Substandard29,679 95,935 78,404 27,192 20,382 251,592 
Doubtful478 478 
Total Bridge - Franchise Finance$9,078 $81,411 $212,460 $94,879 $35,053 $30,993 $$463,874 
Bridge - Equipment Finance
Pass$36,740 $19,892 $132,856 $55,875 $33,371 $63,653 $$342,387 
Special mention1,744 1,744 
Substandard14,948 22,404 40,456 77,808 
Total Bridge - Equipment Finance$36,740 $19,892 $147,804 $78,279 $75,571 $63,653 $$421,939 
Mortgage Warehouse Lending
Pass$$$$$$$1,018,267 $1,018,267 
Total Mortgage Warehouse Lending$$$$$$$1,018,267 $1,018,267 
December 31, 2020
Amortized Cost By Origination YearRevolving Loans
20202019201820172016PriorTotal
Multi-Family
Pass$184,287 $264,254 $149,188 $206,768 $203,481 $313,758 $38,509 $1,360,245 
Special mention390 10,985 11,260 8,400 5,300 36,335 
Substandard8,393 25,239 9,645 15,125 43,920 140,299 242,621 
Total Multi-Family$192,680 $289,883 $169,818 $233,153 $255,801 $459,357 $38,509 $1,639,201 
Non-owner occupied commercial real estate
Pass$532,567 $1,070,940 $706,730 $442,599 $462,201 $607,922 $99,627 $3,922,586 
Special mention2,687 56,533 16,271 34,283 43,699 66,370 219,843 
Substandard30,401 132,814 69,507 56,219 288,998 242,905 820,844 
Total non-owner occupied commercial real estate$565,655 $1,260,287 $792,508 $533,101 $794,898 $917,197 $99,627 $4,963,273 
Construction and Land
Pass$20,860 $158,413 $9,003 $48,657 $26,845 $904 $297 $264,979 
Special mention8,010 8,604 4,284 20,898 
Substandard23 1,366 1,287 4,408 346 7,430 
Total Construction and Land$20,883 $159,779 $18,300 $57,261 $35,537 $1,250 $297 $293,307 
Owner occupied commercial real estate
Pass$229,670 $263,138 $251,413 $232,171 $288,403 $361,130 $17,281 $1,643,206 
Special mention2,593 42,485 11,789 41,799 19,839 20,347 17,985 156,837 
Substandard2,615 24,673 21,114 36,411 26,997 79,860 9,057 200,727 
Total owner occupied commercial real estate$234,878 $330,296 $284,316 $310,381 $335,239 $461,337 $44,323 $2,000,770 
Commercial and industrial
Pass$574,601 $759,384 $257,451 $250,787 $165,105 $47,086 $1,882,856 $3,937,270 
Special mention10,387 49,471 17,096 2,451 20,838 2,977 66,385 169,605 
Substandard21,122 120,275 34,045 14,073 29,907 31,478 89,436 340,336 
Doubtful172 172 
Total commercial and industrial$606,110 $929,130 $308,592 $267,311 $215,850 $81,713 $2,038,677 $4,447,383 
PPP
Pass$781,811 $$$$$$$781,811 
Total PPP$781,811 $$$$$$$781,811 
Pinnacle
Pass$165,218 $118,139 $70,498 $208,568 $203,990 $340,973 $$1,107,386 
Total Pinnacle$165,218 $118,139 $70,498 $208,568 $203,990 $340,973 $$1,107,386 
Bridge - Franchise Finance
Pass$48,741 $91,509 $23,650 $8,745 $11,817 $6,416 $$190,878 
Special mention2,693 54,271 5,175 4,699 2,088 2,667 71,593 
Substandard36,515 101,772 84,064 33,213 16,706 3,297 275,567 
Doubtful10,771 924 11,695 
Total Bridge - Franchise Finance$87,949 $247,552 $123,660 $46,657 $31,535 $12,380 $$549,733 
Bridge - Equipment Finance
Pass$23,684 $137,730 $66,004 $50,000 $36,963 $49,875 $$364,256 
Special mention19,542 16,863 36,405 
Substandard30,762 9,894 34,231 74,887 
Total Bridge - Equipment Finance$23,684 $168,492 $95,440 $101,094 $36,963 $49,875 $$475,548 
Mortgage Warehouse Lending
Pass$$$$$$$1,259,408 $1,259,408 
Total Mortgage Warehouse Lending$$$$$$$1,259,408 $1,259,408 

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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021



At June 30, 2021, the balance of revolving loans converted to term loans was immaterial.
The following tables summarize the Company's commercial credit exposure based on internal risk rating, in aggregate, at the dates indicated (in thousands):
 June 30, 2021
 Multi-FamilyNon-Owner Occupied Commercial Real EstateConstruction
and Land
Owner Occupied Commercial Real EstateCommercial and IndustrialPPPPinnacleBridge - Franchise FinanceBridge - Equipment FinanceMortgage Warehouse LendingTotal
Pass$1,038,043 $3,948,441 $199,347 $1,673,233 $3,770,930 $491,960 $1,046,537 $209,947 $342,387 $1,018,267 $13,739,092 
Special mention6,085 47,907 5,184 41,923 33,364 1,857 1,744 138,064 
Substandard - accruing205,514 676,515 9,319 219,162 277,683 218,665 77,808 1,684,666 
Substandard non-accruing7,069 51,320 4,784 26,582 106,964 32,927 229,646 
Doubtful16,854 478 17,332 
 $1,256,711 $4,724,183 $218,634 $1,960,900 $4,205,795 $491,960 $1,046,537 $463,874 $421,939 $1,018,267 $15,808,800 
 December 31, 2020
 Multi-FamilyNon-Owner Occupied Commercial Real EstateConstruction
and Land
Owner Occupied Commercial Real EstateCommercial and IndustrialPPPPinnacleBridge - Franchise FinanceBridge - Equipment FinanceMortgage Warehouse LendingTotal
Pass$1,360,245 $3,922,586 $264,979 $1,643,206 $3,937,270 $781,811 $1,107,386 $190,878 $364,256 $1,259,408 14,832,025 
Special mention36,335 219,843 20,898 156,837 169,605 71,593 36,405 711,516 
Substandard -accruing218,532 756,825 2,676 177,575 285,925 242,234 74,887 1,758,654 
Substandard non-accruing24,089 64,019 4,754 23,152 54,411 33,333 203,758 
Doubtful172 11,695 11,867 
 $1,639,201 $4,963,273 $293,307 $2,000,770 $4,447,383 $781,811 $1,107,386 $549,733 $475,548 $1,259,408 $17,517,820 
Past Due and Non-Accrual Loans:
The following table presents an aging of loans at the dates indicated (in thousands):
 June 30, 2021December 31, 2020
 Current30 - 59
Days Past
Due
60 - 89
Days Past
Due
90 Days or
More Past
Due
TotalCurrent30 - 59
Days Past
Due
60 - 89
Days Past
Due
90 Days or
More Past
Due
Total
1-4 single family residential$5,128,499 $45,498 $9,345 $23,424 $5,206,766 $4,857,332 $48,851 $7,489 $9,164 $4,922,836 
Government insured residential951,561 103,054 77,401 731,707 1,863,723 722,367 77,883 56,495 562,329 1,419,074 
Other consumer loans5,742 21 22 5,785 6,022 37 22 231 6,312 
Multi-family1,235,529 14,113 7,069 1,256,711 1,602,990 17,842 18,369 1,639,201 
Non-owner occupied commercial real estate4,677,789 14,113 206 32,075 4,724,183 4,876,823 34,117 20,291 32,042 4,963,273 
Construction and land217,400 888 346 218,634 288,032 4,530 399 346 293,307 
Owner occupied commercial real estate1,943,777 924 1,083 15,116 1,960,900 1,971,475 10,756 3,203 15,336 2,000,770 
Commercial and industrial4,173,584 78 2,066 30,067 4,205,795 4,366,009 52,117 552 28,705 4,447,383 
PPP491,960 491,960 781,811 781,811 
Pinnacle1,046,537 1,046,537 1,107,386 1,107,386 
Bridge - franchise finance441,124 9,948 12,802 463,874 498,831 16,423 8,664 25,815 549,733 
Bridge - equipment finance421,939 421,939 475,548 475,548 
Mortgage warehouse lending1,018,267 1,018,267 1,259,408 1,259,408 
 $21,753,708 $164,576 $114,162 $852,628 $22,885,074 $22,814,034 $262,556 $97,115 $692,337 $23,866,042 
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


Included in the table above is the guaranteed portion of SBA loans past due by 90 days or more totaling $33.6 million and $40.3 million at June 30, 2021 and December 31, 2020, respectively.
Loans contractually delinquent by 90 days or more and still accruing totaled $732 million and $562 million at June 30, 2021 and December 31, 2020, respectively, substantially all of which were government insured residential loans. These loans are government insured pool buyout loans, which the Company buys out of GNMA securitizations upon default.
The following table presents information about loans on non-accrual status at the dates indicated (in thousands):
June 30, 2021December 31, 2020
Amortized CostAmortized Cost With No Related AllowanceAmortized CostAmortized Cost With No Related Allowance
Residential and other consumer$45,553 $1,643 $28,828 $1,755 
Commercial:
Multi-family7,069 7,069 24,090 24,090 
Non-owner occupied commercial real estate51,320 30,182 64,017 32,843 
Construction and land4,784 4,439 4,754 4,408 
Owner occupied commercial real estate26,582 7,545 23,152 2,110 
Commercial and industrial123,818 9,760 54,584 9,235 
Bridge - franchise finance33,405 4,010 45,028 9,754 
$292,531 $64,648 $244,453 $84,195 
Included in the table above is the guaranteed portion of non-accrual SBA loans totaling $47.7 million and $51.3 million at June 30, 2021 and December 31, 2020, respectively. The amount of interest income recognized on non-accrual loans was insignificant for the three and six months ended June 30, 2021 and 2020. The amount of additional interest income that would have been recognized on non-accrual loans had they performed in accordance with their contractual terms was approximately $3.4 million and $5.9 million for the three and six months ended June 30, 2021, respectively and $3.0 million and $5.7 million for the three and six months ended June 30, 2020, respectively.
Collateral dependent loans:
The following table presents the amortized cost basis of collateral dependent loans at the dates indicated (in thousands):
June 30, 2021December 31, 2020
Amortized CostExtent to Which Secured by CollateralAmortized CostExtent to Which Secured by Collateral
Residential and other consumer$2,405 $2,377 $2,528 $2,513 
Commercial:
Multi-family7,069 7,069 24,090 24,090 
Non-owner occupied commercial real estate40,965 40,724 52,813 52,435 
Construction and land4,784 4,784 4,754 4,754 
Owner occupied commercial real estate20,228 20,228 14,814 14,777 
Commercial and industrial99,405 61,286 28,112 18,093 
Bridge - franchise finance7,541 5,818 28,986 12,832 
Total commercial179,992 139,909 153,569 126,981 
 $182,397 $142,286 $156,097 $129,494 

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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


Collateral for the multi-family, non-owner occupied commercial real estate and owner-occupied commercial real estate loan classes generally consists of commercial real estate. Collateral for construction and land loans is typically residential or commercial real estate. Collateral for commercial and industrial loans generally consists of equipment, accounts receivable, inventory and other business assets; owner-occupied commercial real estate loans may also be collateralized by these types of assets. Bridge franchise finance loans may be collateralized by franchise value or by equipment. Bridge equipment finance loans are secured by the financed equipment. Residential loans are collateralized by residential real estate. There have been no significant changes to the extent to which collateral secures collateral dependent loans during the six months ended June 30, 2021.
Foreclosure of residential real estate
The recorded investment in residential loans in the process of foreclosure was $200 million, of which $192 million was government insured, at June 30, 2021 and $217 million, of which $209 million was government insured, at December 31, 2020. The carrying amount of foreclosed residential real estate included in other assets in the accompanying consolidated balance sheet was insignificant at June 30, 2021 and December 31, 2020.
Troubled debt restructurings
The following table summarizes loans that were modified in TDRs during the periods indicated, as well as loans modified during the twelve months preceding June 30, 2021 and 2020 that experienced payment defaults during those periods (dollars in thousands):
 Three Months Ended June 30,
 20212020
 Loans Modified in TDRs 
During the Period
TDRs Experiencing Payment Defaults During the PeriodLoans Modified in TDRs 
During the Period
TDRs Experiencing Payment
Defaults During the Period
 Number of
TDRs
Amortized CostNumber of
TDRs
Amortized CostNumber of
TDRs
Amortized CostNumber of
TDRs
Amortized Cost
Government insured residential116$21,758 54$9,878 52 $7,291 121 $19,512 
Non-owner occupied commercial real estate2,853 4,249 
Commercial and industrial1,348
Bridge - franchise finance91918,718 
 117 $24,611 54 $9,878 55 $9,558 127 $42,479 
 Six Months Ended June 30,
 20212020
 Loans Modified in TDRs 
During the Period
TDRs Experiencing Payment
Defaults During the Period
Loans Modified in TDRs 
During the Period
TDRs Experiencing Payment
Defaults During the Period
 Number of
TDRs
Amortized CostNumber of
TDRs
Amortized CostNumber of
TDRs
Amortized CostNumber of
TDRs
Amortized Cost
1-4 single family residential$$$203 $
Government insured residential143 27,235 63 10,997 86 12,183 150 23,994 
Non-owner occupied commercial real estate2,853 4,249 4,249 
Commercial and industrial1,348 5,448 
Bridge - franchise finance14,666 23,358 
 144 $30,088 63 $10,997 99$32,649 $162 $57,049 
TDRs during the three and six months ended June 30, 2021 and 2020 generally included interest rate reductions and extensions of maturity. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy. The total amount of such loans is not material. The majority of loan modifications or deferrals that took place after the onset of the COVID-19 pandemic have not been categorized as TDRs, in accordance with interagency and authoritative guidance and the provisions of the CARES Act.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


Note 5    Income Taxes
The Company’s effective income tax rate was 25.8% and 25.3% for the three and six months ended June 30, 2021, respectively and 21.0% and 19.3% for the three and six months ended June 30, 2020, respectively. The effective income tax rates differed from the statutory federal income tax rate of 21% for the three and six months ended June 30, 2021 due primarily to the impact of state income taxes, partially offset by the benefit of income not subject to federal tax. These factors were largely offsetting for the 2020 periods, when the effective tax rate did not differ materially from the Federal statutory rate of 21%. During the three and six months ended June 30, 2020, income not subject to tax was a larger percentage of pre-tax income when compared to the same periods in 2021.
Note 6    Derivatives and Hedging Activities
The Company has entered into LIBOR-based interest rate swaps and caps designated as cash flow hedges with the objective of limiting the variability of interest payment cash flows. The Company has also entered into LIBOR-based interest rate swaps designated as fair value hedges designed to hedge changes in the fair value of outstanding fixed rate borrowings caused by fluctuations in the benchmark interest rate.
The Company enters into interest rate derivative contracts with certain of its commercial borrowers to enable those borrowers to manage their exposure to interest rate fluctuations. To mitigate interest rate risk associated with these derivative contracts, the Company enters into offsetting derivative contract positions with primary dealers. These interest rate derivative contracts are not designated as hedging instruments; therefore, changes in the fair value of these derivatives are recognized immediately in earnings. For the three and six months ended June 30, 2021 and 2020, the impact on earnings related to changes in fair value of these derivatives was not material.
The Company may be exposed to credit risk in the event of non-performance by the counterparties to its interest rate derivative agreements. The Company assesses the credit risk of its financial institution counterparties by monitoring publicly available credit rating and financial information. The Company manages dealer credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, the use of ISDA master agreements, central clearing mechanisms and counterparty limits. The agreements contain bilateral collateral arrangements with the amount of collateral to be posted generally governed by the settlement value of outstanding swaps. The Company manages the risk of default by its commercial borrower counterparties through its normal loan underwriting and credit monitoring policies and procedures. The Company does not currently anticipate any significant losses from failure of interest rate derivative counterparties to honor their obligations.
The CME legally characterizes variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposures rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. The Company's clearing agent for interest rate derivative contracts centrally cleared through the CME settles the variation margin daily with the CME; therefore, those interest rate derivative contracts the Company clears through the CME are reported at a fair value of approximately 0 at both June 30, 2021 and December 31, 2020.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


The following tables set forth certain information concerning the Company’s interest rate contract derivative financial instruments and related hedged items at the dates indicated (dollars in thousands):
 June 30, 2021
Weighted
Average Pay Rate
Weighted
Average Receive Rate
Weighted
Average
Remaining
Life in Years
  Notional AmountBalance Sheet LocationFair Value
 Hedged ItemAssetLiability
Derivatives designated as cash flow hedges:        
Pay-fixed interest rate swapsVariability of interest cash flows on variable rate borrowings2.53% 3-Month LIBOR2.3$2,381,000 Other liabilities$$(4,544)
Interest rate caps purchased, indexed to Fed Funds effective rateVariability of interest cash flows on variable rate borrowings0%—%4.4100,000 Other assets1,259 
Derivatives designated as fair value hedges:
Receive-fixed interest rate swaps Variability of fair value of fixed rate borrowings 3-Month LIBOR1.54%0.2200,000 Other liabilities
Derivatives not designated as hedges: 
Pay-fixed interest rate swaps 3.57%Indexed to 1-month LIBOR5.41,679,754 Other assets / Other liabilities1,067 (25,087)
Pay-variable interest rate swaps Indexed to 1-month LIBOR3.57%5.41,679,754 Other assets77,014 (2,154)
Interest rate caps purchased, indexed to 1-month LIBOR2.36%2.643,000 Other assets346 
Interest rate caps sold, indexed to 1-month LIBOR2.36%2.643,000 Other liabilities(346)
  $6,126,508 $79,686 $(32,131)
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


 December 31, 2020
Weighted
Average Pay Rate
Weighted
Average Receive Rate
Weighted
Average
Remaining
Life in Years
  Notional AmountBalance Sheet LocationFair Value
 Hedged ItemAssetLiability
Derivatives designated as cash flow hedges:        
Pay-fixed interest rate swapsVariability of interest cash flows on variable rate borrowings2.41% 3-Month LIBOR2.5$2,771,000 Other liabilities$$(5,971)
Interest rate caps purchased, indexed to Fed Funds effective rateVariability of interest cash flows on variable rate borrowings0%—%4.9100,000 Other assets485 
Derivatives designated as fair value hedges: 
Receive-fixed interest rate swapsVariability of fair value of fixed rate borrowings 3-Month LIBOR1.55%0.6250,000 Other liabilities
Derivatives not designated as hedges:
Pay-fixed interest rate swaps 3.61%Indexed to 1-month LIBOR5.31,626,152 Other assets / Other liabilities(38,519)
Pay-variable interest rate swaps Indexed to 1-month LIBOR3.61%5.31,626,152 Other assets / Other liabilities123,345 
Interest rate caps purchased, indexed to 1-month LIBOR3.72%0.425,921 Other assets
Interest rate caps sold, indexed to 1-month LIBOR3.72%0.425,921 Other liabilities
  $6,425,146 $123,830 $(44,490)
The following table provides information about the amount of gain (loss) related to derivatives designated as cash flow hedges reclassified from AOCI into interest expense for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,Location of Loss Reclassified from AOCI into Income
2021202020212020
Interest rate contracts$(14,882)$(10,009)$(29,857)$(14,565)Interest expense on borrowings
During the three and six months ended June 30, 2021 and 2020, no derivative positions designated as cash flow hedges were discontinued and none of the gains and losses reported in AOCI were reclassified into earnings as a result of the discontinuance of cash flow hedges or because of the early extinguishment of debt. As of June 30, 2021, the amount of net loss expected to be reclassified from AOCI into earnings during the next twelve months was $38.9 million.
The following table provides information about the amount of gain (loss) related to derivatives designated as fair value hedges recognized in earnings for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,Location of Gain (Loss) in Consolidated Statements of Income
2021202020212020
Fair value adjustment on derivatives$(669)$$(1,496)$4,028 Interest expense on borrowings
Fair value adjustment on hedged items670 (164)1,495 (4,072)Interest expense on borrowings
Gain (loss) recognized on fair value hedges (ineffective portion)$$(156)$(1)$(44)
22

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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


The following table provides information about the hedged items related to derivatives designated as fair value hedges at the dates indicated (in thousands):
June 30, 2021December 31, 2020Location in Consolidated Balance Sheets
Contractual balance outstanding of hedged item$200,000 $250,000 FHLB advances
Cumulative fair value hedging adjustments$505 $1,999 FHLB advances
Some of the Company’s ISDA master agreements with financial institution counterparties contain provisions that permit either counterparty to terminate the agreements and require settlement in the event that regulatory capital ratios fall below certain designated thresholds, upon the initiation of other defined regulatory actions or upon suspension or withdrawal of the Bank’s credit rating. Currently, there are no circumstances that would trigger these provisions of the agreements.
The Company does not offset assets and liabilities under master netting agreements for financial reporting purposes. Information on interest rate swaps subject to these agreements is as follows at the dates indicated (in thousands):
 June 30, 2021
  Gross Amounts Offset in Balance
Sheet
Net Amounts Presented in
Balance Sheet
Gross Amounts Not Offset in
Balance Sheet
 
 Gross Amounts
Recognized
Derivative
Instruments
Collateral
Pledged
Net Amount
Derivative assets$1,413 $$1,413 $(1,363)$$50 
Derivative liabilities(29,631)(29,631)1,363 28,220 (48)
 $(28,218)$$(28,218)$$28,220 $
 December 31, 2020
  Gross Amounts Offset in Balance
Sheet
Net Amounts Presented in
Balance Sheet
Gross Amounts Not Offset in
Balance Sheet
 
 Gross Amounts
Recognized
Derivative
Instruments
Collateral
Pledged
Net Amount
Derivative assets$$$$$$
Derivative liabilities(44,490)(44,490)44,332 (158)
$(44,490)$$(44,490)$$44,332 $(158)
The difference between the amounts reported for interest rate swaps subject to master netting agreements and the total fair value of interest rate contract derivative financial instruments reported in the consolidated balance sheets is related to interest rate derivative contracts not subject to master netting agreements.
At June 30, 2021, the Company had pledged net financial collateral of $31.5 million as collateral for interest rate swaps in a liability position that are not centrally cleared. The amount of collateral required to be posted varies based on the settlement value of outstanding swaps and in some cases may include initial margin requirements.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


Note 7    Stockholders’ Equity
Accumulated Other Comprehensive Income
Changes in other comprehensive income are summarized as follows for the periods indicated (in thousands):
Three Months Ended June 30,
 20212020
 Before TaxTax EffectNet of TaxBefore TaxTax EffectNet of Tax
Unrealized gains (losses) on investment securities available for sale:   
Net unrealized holding gain arising during the period$18,692 $(4,766)$13,926 $252,893 $(64,488)$188,405 
Amounts reclassified to gain on investment securities available for sale, net(2,842)724 (2,118)(5,723)1,459 (4,264)
Net change in unrealized gains (losses) on investment securities available for sale15,850 (4,042)11,808 247,170 (63,029)184,141 
Unrealized losses on derivative instruments:
Net unrealized holding gain (loss) arising during the period(12,005)3,061 (8,944)(12,288)1,218 (11,070)
Amounts reclassified to interest expense on borrowings14,882 (3,794)11,088 10,009 (2,507)7,502 
Net change in unrealized losses on derivative instruments2,877 (733)2,144 (2,279)(1,289)(3,568)
Other comprehensive income (loss)$18,727 $(4,775)$13,952 $244,891 $(64,318)$180,573 
Six Months Ended June 30,
 20212020
 Before TaxTax EffectNet of TaxBefore TaxTax EffectNet of Tax
Unrealized gains (losses) on investment securities available for sale:   
Net unrealized holding loss arising during the period$(11,489)$2,930 $(8,559)$(33,743)$8,988 $(24,755)
Amounts reclassified to gain on investment securities available for sale, net(6,809)1,736 (5,073)(7,253)1,849 (5,404)
Net change in unrealized gains (losses) on investment securities available for sale(18,298)4,666 (13,632)(40,996)10,837 (30,159)
Unrealized losses on derivative instruments:
Net unrealized holding gain (loss) arising during the period21,030 (5,363)15,667 (122,239)30,355 (91,884)
Amounts reclassified to interest expense on borrowings29,857 (7,613)22,244 14,565 (3,714)10,851 
Net change in unrealized losses on derivative instruments50,887 (12,976)37,911 (107,674)26,641 (81,033)
Other comprehensive income (loss)$32,589 $(8,310)$24,279 $(148,670)$37,478 $(111,192)
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Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


The categories of AOCI and changes therein are presented below for the periods indicated (in thousands):
Three Months Ended June 30,
Unrealized Gain (Loss) on
Investment Securities
Available for Sale
Unrealized Gain (Loss)
on Derivative
Instruments
Total
Balance at March 31, 2021$38,359 $(77,184)$(38,825)
Other comprehensive income11,808 2,144 13,952 
Balance at June 30, 2021$50,167 $(75,040)$(24,873)
Balance at March 31, 2020$(186,115)$(137,477)$(323,592)
Other comprehensive income (loss)184,141 (3,568)$180,573 
Balance at June 30, 2020$(1,974)$(141,045)$(143,019)
Six Months Ended June 30,
Unrealized Gain (Loss) on
Investment Securities
Available for Sale
Unrealized Gain (Loss)
on Derivative
Instruments
Total
Balance at December 31, 2020$63,799 $(112,951)$(49,152)
Other comprehensive income (loss)(13,632)37,911 24,279 
Balance at June 30, 2021$50,167 $(75,040)$(24,873)
Balance at December 31, 2019$28,185 $(60,012)$(31,827)
Other comprehensive loss(30,159)(81,033)(111,192)
Balance at June 30, 2020$(1,974)$(141,045)$(143,019)
 Capital Actions
In July 2021, the Company's Board of Directors authorized the repurchase of up to $150 million in shares of its outstanding common stock. This authorization is in addition to $37.7 million in remaining authorization under a previously announced share repurchase program. Any repurchases under the program will be made in accordance with applicable securities laws from time to time in open market or private transactions. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued without prior notice at any time.
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Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
June 30, 2021


Note 8    Equity Based and Other Compensation Plans
Share Awards
Unvested share awards
A summary of activity related to unvested share awards follows for the periods indicated:
Number of Share AwardsWeighted Average Grant Date Fair Value
Unvested share awards outstanding, December 31, 20201,161,835 $33.32 
Granted559,180 42.17 
Vested(460,269)34.01 
Canceled or forfeited(48,684)35.19 
Unvested share awards outstanding, June 30, 20211,212,062 $37.07 
Unvested share awards outstanding, December 31, 20191,050,455 $38.24 
Granted644,300 29.73 
Vested(455,260)39.15 
Canceled or forfeited(33,137)36.21 
Unvested share awards outstanding, June 30, 20201,206,358 $33.41 
Unvested share awards are generally valued at the closing price of the Company's common stock on the date of grant. All shares granted prior to 2019 vest in equal annual installments over a period of three years from the date of grant. All shares granted in 2019 and later to Company employees vest in equal annual installments over a period of four years from the date of grant. Shares granted to the Company's Board of Directors vest over a period of one year.
The following table summarizes the closing price of the Company's stock on the date of grant for shares granted and the aggregate grant date fair value of shares vesting for the periods indicated (in thousands, except per share data):
Six Months Ended June 30,
20212020
Closing price on date of grant$42.01 - $47.52$13.99 - $30.90
Aggregate grant date fair value of shares vesting$15,652 $17,824 
The total unrecognized compensation cost of $34.5 million for all unvested share awards outstanding at June 30, 2021 will be recognized over a weighted average remaining period of 2.94 years.
Executive share-based awards
Certain of the Company's executives are eligible to receive annual awards of RSUs and PSUs (collectively, the "share units"). Annual awards of RSUs represent a fixed number of shares and generally vest on December 31st in equal tranches over three years for grants prior to 2019, and over four years for awards issued in 2019 and after. PSUs are initially granted based on a target value. The number of PSUs that ultimately vest at the end of the performance measurement period will be based on the achievement of performance criteria pre-established by the Compensation Committee of the Board of Directors. Upon vesting, the share units will be converted to common stock on a one-for-one basis, or may be settled in cash at the Company's option. The share units will accumulate dividends declared on the Company's common stock from the date of grant to be paid subsequent to vesting.
As a result of the majority of previous settlements being in cash, all RSUs and PSUs have been determined to be liability instruments and are remeasured at fair value each reporting period until the awards are settled. The RSUs are valued based on the closing price of the Company's common stock at the reporting date. The PSUs are valued based on the closing price of the Company's common stock at the reporting date net of a discount related to any applicable market conditions, considering the
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probability of meeting the defined performance conditions. Compensation cost related to PSUs is recognized during the performance period based on the probable outcome of the respective performance conditions.
A summary of activity related to executive share-based awards for the periods indicated follows:
RSUPSU
Unvested executive share-based awards outstanding, December 31, 2020156,555 179,793 
Granted63,814 63,814 
Unvested executive share-based awards outstanding, June 30, 2021220,369 243,607 
Unvested executive share-based awards outstanding, December 31, 2019112,116 125,088 
Granted106,731 106,731 
Unvested executive share-based awards outstanding, June 30, 2020218,847 231,819 
The total liability for the share units was $6.8 million at June 30, 2021. The total unrecognized compensation cost of $13.0 million for these share units at June 30, 2021 will be recognized over a weighted average remaining period of 2.22 years.
Incentive awards
The Company's annual incentive compensation arrangements for employees other than those eligible for the executive share-based awards discussed above provide for settlement through a combination of cash payments and unvested share awards following the end of the annual performance period. The dollar value of share awards to be granted is based on the achievement of performance criteria established in the incentive arrangements. The number of shares of common stock to be awarded is variable based on the closing price of the Company's stock on the date of grant; therefore, these awards are initially classified as liability instruments, with compensation cost recognized from the beginning of the performance period. Awards related to performance periods prior to 2019 vest over three years and awards related to the 2019 and subsequent performance periods vest in equal installments over a period of four years from the date of grant. No common stock was awarded pursuant to these incentive arrangements for the 2020 performance period. These awards are included in the summary of activity related to unvested share awards above. The accrued liability and unrecognized compensation cost are based on management's current estimate of the likely outcome of the performance criteria established in the incentive arrangements and may differ from actual results.
Option Awards
A summary of activity related to stock option awards for the six months ended June 30, 2021 and 2020 follows:
Number of
Option
Awards
Weighted
Average
Exercise Price
Option awards outstanding, December 31, 20201,569 $15.94 
Exercised(1,569)15.94 
Option awards outstanding and exercisable, June 30, 2021$
Option awards outstanding, December 31, 2019737,753 $26.64 
Exercised(60,000)25.48 
Option awards outstanding, June 30, 2020677,753 $26.74 
The intrinsic value of options exercised and related tax benefits was immaterial for the six months ended June 30, 2021 and 2020.
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Note 9    Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis
The following is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which those measurements are typically classified.
Investment securities available for sale and marketable equity securities—Fair value measurements are based on quoted prices in active markets when available; these measurements are classified within level 1 of the fair value hierarchy. These securities typically include U.S. Treasury securities and certain preferred stocks. If quoted prices in active markets are not available, fair values are estimated using quoted prices of securities with similar characteristics, quoted prices of identical securities in less active markets, discounted cash flow techniques, or matrix pricing models. These securities are generally classified within level 2 of the fair value hierarchy and include U.S. Government agency securities, U.S. Government agency and sponsored enterprise MBS, preferred stock investments for which level 1 valuations are not available, non-mortgage asset-backed securities, single family rental real estate-backed securities, private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and state and municipal obligations. Pricing of these securities is generally primarily spread driven. Observable inputs that may impact the valuation of these securities include benchmark yield curves, credit spreads, reported trades, dealer quotes, bids, issuer spreads, current rating, historical constant prepayment rates, historical voluntary prepayment rates, structural and waterfall features of individual securities, published collateral data, and for certain securities, historical constant default rates and default severities.
The Company uses third-party pricing services in determining fair value measurements for investment securities. To obtain an understanding of the methodologies and assumptions used, management reviews written documentation provided by the pricing services, conducts interviews with valuation desk personnel and reviews model results and detailed assumptions used to value selected securities as considered necessary. Management has established a robust price challenge process that includes a review by the treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from expectations is challenged. If considered necessary to resolve any discrepancies, a price will be obtained from an additional independent valuation source. The Company does not typically adjust the prices provided, other than through this established challenge process. The results of price challenges are subject to review by executive management. The Company has also established a quarterly process whereby prices provided by its primary pricing service for a sample of securities are validated. Any price discrepancies are resolved based on careful consideration of the assumptions and inputs employed by each of the pricing sources.
Servicing rights—Commercial servicing rights are valued using a discounted cash flow methodology incorporating contractually specified servicing fees and market based assumptions about prepayments, discount rates, default rates and costs of servicing. Prepayment and default assumptions are based on historical industry data for loans with similar characteristics. Assumptions about costs of servicing are based on market convention. Discount rates are based on rates of return implied by observed trades of underlying loans in the secondary market. These instruments are classified within level 2 of the fair value hierarchy.
Derivative financial instruments—Fair values of interest rate swaps and caps are determined using widely accepted discounted cash flow modeling techniques. These discounted cash flow models use projections of future cash payments and receipts that are discounted at mid-market rates. Observable inputs that may impact the valuation of these instruments include LIBOR swap rates and LIBOR forward yield curves. These fair value measurements are generally classified within level 2 of the fair value hierarchy.
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The following tables present assets and liabilities measured at fair value on a recurring basis at the dates indicated (in thousands):
 June 30, 2021
 Level 1Level 2Total
Investment securities available for sale:   
U.S. Treasury securities$156,637 $$156,637 
U.S. Government agency and sponsored enterprise residential MBS2,215,440 2,215,440 
U.S. Government agency and sponsored enterprise commercial MBS835,588 835,588 
Private label residential MBS and CMOs2,111,727 2,111,727 
Private label commercial MBS2,594,024 2,594,024 
Single family rental real estate-backed securities617,445 617,445 
Collateralized loan obligations982,267 982,267 
Non-mortgage asset-backed securities176,506 176,506 
State and municipal obligations228,625 228,625 
SBA securities215,634 215,634 
Marketable equity securities88,142 88,142 
Servicing rights6,950 6,950 
Derivative assets79,686 79,686 
Total assets at fair value$244,779 $10,063,892 $10,308,671 
Derivative liabilities$$(32,131)$(32,131)
Total liabilities at fair value$$(32,131)$(32,131)
 December 31, 2020
 Level 1Level 2Total
Investment securities available for sale:   
U.S. Treasury securities$80,851 $$80,851 
U.S. Government agency and sponsored enterprise residential MBS2,405,570 2,405,570 
U.S. Government agency and sponsored enterprise commercial MBS539,354 539,354 
Private label residential MBS and CMOs998,603 998,603 
Private label commercial MBS2,526,354 2,526,354 
Single family rental real estate-backed securities650,888 650,888 
Collateralized loan obligations1,140,274 1,140,274 
Non-mortgage asset-backed securities253,261 253,261 
State and municipal obligations235,709 235,709 
SBA securities231,545 231,545 
Marketable equity securities104,274 104,274 
Servicing rights7,073 7,073 
Derivative assets123,830 123,830 
Total assets at fair value$185,125 $9,112,461 $9,297,586 
Derivative liabilities$$(44,490)$(44,490)
Total liabilities at fair value$$(44,490)$(44,490)
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Assets and liabilities measured at fair value on a non-recurring basis
Following is a description of the methodologies used to estimate the fair values of assets and liabilities that may be measured at fair value on a non-recurring basis, and the level within the fair value hierarchy in which those measurements are typically classified. 
Collateral dependent loans, OREO and other repossessed assets—The carrying amount of collateral dependent loans is typically based on the fair value of the underlying collateral, which may be real estate or other business assets, less estimated costs to sell when repayment is expected to come from the sale of the collateral. The carrying value of OREO is initially measured based on the fair value of the real estate acquired in foreclosure and subsequently adjusted to the lower of cost or estimated fair value, less estimated cost to sell. Fair values of real estate collateral and OREO are typically based on third-party real estate appraisals which utilize market and income approaches to valuation incorporating both observable and unobservable inputs. The fair value of repossessed assets or collateral consisting of other business assets may be based on third-party appraisals or internal analyses that use market approaches to valuation incorporating a combination of observable and unobservable inputs.
Fair value measurements related to collateral dependent loans, OREO and other repossessed assets are generally classified within level 3 of the fair value hierarchy.
Loans held for sale—Loans not originated or otherwise acquired with the intent to sell are transferred into the held for sale classification at the lower of carrying amount or fair value, typically determined based on the estimated selling price of the loans. These fair value measurements are typically classified within level 3 of the fair value hierarchy.
The following table presents the net carrying value of assets classified within level 3 of the fair value hierarchy at the dates indicated, for which non-recurring changes in fair value have been recorded (in thousands):
June 30, 2021December 31, 2020
Collateral dependent loans$92,410 $73,803 
Loans held for sale20,500 
OREO and repossessed assets2,061 2,786 
$94,471 $97,089 
The following table presents the carrying value and fair value of financial instruments and the level within the fair value hierarchy in which those measurements are classified at the dates indicated (dollars in thousands):
 June 30, 2021December 31, 2020
 LevelCarrying ValueFair ValueCarrying ValueFair Value
Assets:     
Cash and cash equivalents1$895,348 $895,348 $397,716 $397,716 
Investment securities1/2$10,232,035 $10,232,907 $9,176,683 $9,177,870 
Non-marketable equity securities2$164,959 $164,959 $195,865 $195,865 
Loans held for sale2$$$24,676 $25,057 
Loans, net3$22,885,074 $23,190,143 $23,608,719 $24,205,016 
Derivative assets2$79,686 $79,686 $123,830 $123,830 
Liabilities:
Demand, savings and money market deposits2$25,631,195 $25,631,195 $22,688,617 $22,688,617 
Time deposits2$2,978,074 $2,979,040 $4,807,199 $4,814,862 
Federal funds purchased2$$$180,000 $180,000 
FHLB advances2$2,681,505 $2,683,248 $3,122,999 $3,127,190 
Notes and other borrowings2$721,639 $838,205 $722,495 $849,120 
Derivative liabilities2$32,131 $32,131 $44,490 $44,490 
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Note 10    Commitments and Contingencies 
The Company issues off-balance sheet financial instruments to meet the financing needs of its customers. These financial instruments include commitments to fund loans, unfunded commitments under existing lines of credit, and commercial and standby letters of credit. These commitments expose the Company to varying degrees of credit and market risk which are essentially the same as those involved in extending loans to customers, and are subject to the same credit policies used in underwriting loans. Collateral may be obtained based on the Company’s credit evaluation of the counterparty. The Company’s maximum exposure to credit loss is represented by the contractual amount of these commitments.
Commitments to fund loans
These are agreements to lend funds to customers as long as there is no violation of any condition established in the contract. Commitments to fund loans generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of these commitments are expected to expire without being funded and, therefore, the total commitment amounts do not necessarily represent future liquidity requirements. 
Unfunded commitments under lines of credit
Unfunded commitments under lines of credit include commercial, commercial real estate and consumer lines of credit to existing customers, for many of which additional extensions of credit are subject to borrowing base requirements. Some of these commitments may mature without being fully funded. 
Commercial and standby letters of credit
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support trade transactions or guarantee arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 
Total lending related commitments outstanding at June 30, 2021 were as follows (in thousands):
Commitments to fund loans$622,579 
Unfunded commitments under lines of credit3,747,497 
Commercial and standby letters of credit95,034 
$4,465,110 
Legal Proceedings
The Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, based upon advice of legal counsel, the likelihood is remote that the impact of these proceedings, either individually or in the aggregate, would be material to the Company’s consolidated financial position, results of operations or cash flows.
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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations 
The following discussion and analysis is intended to focus on significant matters impacting and changes in the financial condition and results of operations of the Company during the six months ended June 30, 2021 and should be read in conjunction with the consolidated financial statements and notes hereto included in this Quarterly Report on Form 10-Q and BKU's 2020 Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Annual Report on Form 10-K").
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company’s current views with respect to, among other things, future events and financial performance. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” "future" and similar expressions identify forward-looking statements. These forward-looking statements are based on the historical performance of the Company or on the Company’s current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the Company that the future plans, estimates or expectations so contemplated will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to the Company’s operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by the COVID-19 pandemic. If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, the risk factors described in Part I, Item 1A of the 2020 Annual Report on Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K. The Company does not undertake any obligation to publicly update or review any forward looking statement, whether as a result of new information, future developments or otherwise.
Impact of the COVID-19 Pandemic and Our Response
In March 2020, the World Health Organization declared COVID-19 a global pandemic. Governmental authorities implemented a number of measures attempting to contain the spread and impact of COVID-19 such as travel bans and restrictions, quarantines, shelter in place orders, and limitations on business activities. While most of these restrictions have been lifted or moderated and we believe economic indicators currently point to a strong recovery, the pandemic and these precautionary measures negatively impacted the global and domestic economies, including in the Company's primary market areas. Certain sectors to which the Company has credit exposure, such as travel and hospitality and retail were particularly impacted. The response of the U.S. Government to the economic impact of the crisis was swift and broad-based. The government took a series of actions to support individuals, households and businesses that were negatively impacted by the economic disruption caused by the pandemic including enactment and subsequent extension of the CARES Act. The Federal Reserve also enacted a suite of facilities using its emergency lending powers designed to support liquidity and the flow of credit. Banking regulators reduced reserve requirements and enacted rules designed to support financial institutions in their efforts to work with customers during this time. Development and deployment of vaccines and improvements in treatments for the virus are positive signs and the economy is recovering, however, uncertainty remains about the future trajectory of that recovery and the virus and by extension, the ultimate impact on our financial condition and results of operations.
A summary of the effects the COVID-19 pandemic has had on our Company is discussed in the "Impact of the COVID-19 Pandemic and Our Response" section in the MD&A of the Company's 2020 Annual report on Form 10-K. A discussion of how our Company continues to be and may be impacted in the future follows. These matters are discussed in further detail throughout this Form 10-Q.
Our results of operations and financial condition were impacted by the COVID-19 pandemic.
The COVID-19 pandemic and its effect on the economy and our borrowers has impacted the provision for credit losses and the ACL. The provision for credit losses has been more volatile since the onset of the pandemic; deterioration in economic conditions led to a higher provision for credit losses during the year ended December 31, 2020, while improvement in economic conditions and our reasonable and supportable economic forecast contributed to a recovery of provision for credit losses of $(27.5) million and $(55.5) million for the quarter and six months ended June 30, 2021. While key economic indicators and our economic forecast have improved significantly, there continues to be uncertainty as to the ultimate impact of the COVID-19 crisis on future credit loss expense and future levels of the ACL. The provision for credit losses may continue to be volatile and the level of the ACL may change materially from current levels. Future levels of the ACL could be significantly impacted, in either direction, by changes in the economic outlook and by the evolving impact of the pandemic and related events on individual borrowers in the portfolio.
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Levels of criticized and classified assets and non-performing assets increased in 2020, largely as a result of the COVID-19 pandemic and its impact or potential impact on our borrowers and certain portfolio sub-segments. Additionally, a significant number of borrowers requested and were granted relief in the form of temporary payment deferrals or modifications. Although levels of criticized and classified loans remain elevated compared to historical levels, as COVID-19 related restrictions on economic activity were lifted and the economic recovery gained momentum, criticized and classified loans declined by a total of $616 million and loans on short-term deferral or subject to modification under the CARES Act declined by $297 million over the first six months of 2021. See the section entitled "Asset Quality" for further discussion. If the economic recovery continues on the path of our current reasonable and supportable forecast, we would expect to see the positive impact of that recovery on the operations of borrowers, and would expect the level of criticized and classified loans to decline further over the remainder of 2021. However, since uncertainty remains about the trajectory of the virus and the economic recovery and the specific impact on our borrowers, there is a possibility that the level of criticized and classified assets may not decline. Similarly, non-performing assets, charge-offs and delinquencies could increase from current levels, particularly as loans currently subject to temporary payment deferrals and modifications reach the end of those deferral or modification periods.
The level of commercial loan origination activity, outside of our participation in the PPP, was lower in 2020 as a result of the pandemic, and commercial loan demand remained below pre-pandemic levels through the first half of 2021. Line utilization has also remained below pre-pandemic levels.
Levels of liquidity in the banking system and on our balance sheet have been elevated, likely as a result of fiscal stimulus. Elevated levels of liquidity and the related persistent low interest rate environment have contributed to deposit growth, but have also had a negative impact on our net interest margin. It is difficult to predict the long-term impact on liquidity of future changes in fiscal or monetary policy.
The pandemic has impacted our operations. Currently, the substantial majority of our non-branch employees continue to work remotely, although we expect most of these employees to return to the office under a hybrid arrangement in the near term. 97% of our branch locations are open and have resumed normal operations. We did not experience any significant operational difficulties, technology failures or outages, or customer service disruptions as a result of the transition to a remote work environment. We continue to focus on ensuring that our technology systems and internal controls operate effectively in a remote or hybrid work environment. We have put mechanisms in place to allow us to evaluate all significant modifications to processes and procedures to insure continued effectiveness of our control environment. We have not identified any instances in which our control environment has failed to operate effectively.
Customer demand for our lending products has been and may continue to be negatively affected by the impact of the pandemic on their businesses and on the overall level of economic activity. Potential borrowers impacted by the pandemic may no longer meet our underwriting criteria. Loan production in most portfolio segments has not yet returned to pre-pandemic levels. While we currently expect loan production to increase over the second half of 2021, our ability to increase production will depend at least to some extent on the future trajectory of the pandemic and on the pace and timing of economic recovery.
In response to the pandemic, we prioritized risk management and implemented a number of measures to support our customers, employees and communities. Those measures included, but were not limited to:
Activated and continue to operate under our business continuity plan under the leadership of executive management and maintained a regular cadence of Board of Directors update calls.
Enhanced liquidity monitoring and management protocols, although we have not experienced constraints on liquidity since the onset of the pandemic; in fact, liquidity levels have been elevated.
Focused on portfolio management activities, including segregating certain segments of the loan portfolio for additional monitoring, increasing the level and frequency of pro-active outreach to borrowers, enhancing workout and recovery staffing and processes and enhancing our stress testing framework. Results of internal stress testing indicate that we have sufficient capital to withstand an increase in credit losses materially beyond levels currently expected, and to withstand a severe downturn.
Monitoring our critical third party service providers to insure their ability to continue to provide support in the current environment. We have experienced no significant service disruptions.
Expanded certain employee benefits and launched a number of programs and protocols to keep our employees healthy and engaged.
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Supported our clients through participating in the Small Business Administration’s PPP, the Federal Reserve's MSLF, granting payment deferrals, loan modifications and fee waivers on a case-by-case basis.
Disbursed over 150 grants to nonprofit organizations across our footprint and helped to meet the needs of our community partners through employee volunteer efforts, including "virtual" volunteer hours.
We remain confident in our long-term underlying strength and stability, and our ability to navigate these challenging conditions.
Overview
Quarterly Highlights
In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest margin, the cost of deposits, levels and composition of non-interest income and non-interest expense, performance ratios such as the return on average equity and return on average assets and asset quality ratios, including the ratio of non-performing loans to total loans, non-performing assets to total assets, trends in criticized and classified assets and portfolio delinquency and charge-off trends. We consider growth in earning assets and deposits, particularly non-interest bearing deposits, trends in funding mix and cost of funds. We analyze these ratios and trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable financial institutions.
Quarterly highlights include:
Net income for the three months ended June 30, 2021 was $104.0 million, or $1.11 per diluted share, compared to $76.5 million, or $0.80 per diluted share, for the three months ended June 30, 2020 and net income of $98.8 million or $1.06 per diluted share for the immediately preceding quarter ended March 31, 2021. Net income for the six months ended June 30, 2021 was $202.8 million, or $2.17 per diluted share, compared to $45.6 million, or $0.47 per diluted share, for the six months ended June 30, 2020. On an annualized basis, earnings for the six months ended June 30, 2021 generated a return on average stockholders' equity of 13.2% and a return on average assets of 1.15%.
PPNR was $112.6 million for the three months ended June 30, 2021 compared to $103.3 million for the immediately preceding three months ended March 31, 2021 and $122.3 million for the three months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, PPNR was $215.9 million and $207.3 million, respectively.
Net interest income increased by $2.1 million compared to the immediately preceding quarter ended March 31, 2021 and by $8.0 million compared to the quarter ended June 30, 2020. The net interest margin, calculated on a tax-equivalent basis, decreased to 2.37% for the three months ended June 30, 2021 from 2.39% for both the immediately preceding three months ended March 31, 2021 and the three months ended June 30, 2020.
The average cost of total deposits continued to decline, dropping by 0.08% to 0.25% for the three months ended June 30, 2021 from 0.33% for the immediately preceding three months ended March 31, 2021, and 0.80% for the three months ended June 30, 2020. On a spot basis, the APY on total deposits declined to 0.22% at June 30, 2021 from 0.27% at March 31, 2021 and 0.36% at December 31, 2020.
For the three months ended June 30, 2021, the Company recorded a recovery of credit losses of $(27.5) million compared to a recovery of $(28.0) million for the immediately preceding three months ended March 31, 2021 and a provision for credit losses of $25.4 million for the three months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, the provision for (recovery of) credit losses was $(55.5) million and $150.8 million, respectively.
As expected, the Company's levels of criticized and classified loans, which had increased as a result of the COVID-19 pandemic, have started to decline. During the three months ended June 30, 2021, total criticized and classified loans declined by $541 million or 21%, to $2.1 billion at June 30, 2021 from $2.6 billion at March 31, 2021.
Loans currently under short-term deferral totaled $41 million and loans modified under the CARES Act totaled $456 million for a total of $497 million at June 30, 2021, down from a total of $762 million at March 31, 2021.
Non-interest bearing demand deposits grew by $869 million during the three months ended June 30, 2021 while total deposits grew by $877 million. Average non-interest bearing demand deposits grew by $673 million for the three months ended June 30, 2021 compared to the immediately preceding quarter and by $2.9 billion compared to the
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second quarter of the prior year. At June 30, 2021, non-interest bearing demand deposits represented 31% of total deposits, compared to 25% of total deposits at December 31, 2020.
Investment securities grew by $987 million for the three months ended June 30, 2021, while loans and operating leases, excluding PPP loans, declined by $69 million. Excess liquidity was deployed into the investment portfolio during the quarter as loan growth continued to lag growth in deposits.
Book value per common share and tangible book value per common share at June 30, 2021 increased to $33.91 and $33.08, respectively, from $32.05 and $31.22, respectively at December 31, 2020.
On July 21, 2021, the Company's Board of Directors authorized the repurchase of up to $150 million in shares of its outstanding common stock. This authorization is in addition to $37.7 million in remaining authorization under a previously announced share repurchase program. Any repurchases under the program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, the Company’s capital position and amount of retained earnings, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued without prior notice at any time.
Results of Operations
Net Interest Income
Net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings. Net interest income is impacted by the mix of interest earning assets and interest bearing liabilities, the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources, movements in market interest rates, the shape of the yield curve, levels of non-performing assets and pricing pressure from competitors.
The mix of interest earning assets is influenced by loan demand, market and competitive conditions in our primary lending markets, by management's continual assessment of the rate of return and relative risk associated with various classes of earning assets and liquidity considerations. The mix of interest bearing liabilities is influenced by the Company's liquidity profile, management's assessment of the desire for lower cost funding sources weighed against relationships with customers and growth expectations, our ability to attract and retain core deposit relationships, competition for deposits in the Company's markets and the availability and pricing of other sources of funds.
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The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of taxable equivalent interest income from earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Non-accrual loans are included in the average balances presented in this table; however, interest income foregone on non-accrual loans is not included. Interest income, yields, spread and margin have been calculated on a tax-equivalent basis for loans and investment securities that are exempt from federal income taxes, at a federal tax rate of 21% (dollars in thousands):
Three Months Ended June 30,Three Months Ended March 31,Three Months Ended June 30,
 202120212020
 Average
Balance
Interest (1)
Yield/
Rate (1)(2)
Average
Balance
Interest (1)
Yield/
Rate
(1)(2)
Average
Balance
Interest (1)
Yield/
Rate (1)(2)
Assets:
Interest earning assets:
Loans$22,996,564 $205,940 3.59 %$23,549,309 $208,821 3.58 %$23,534,684 $217,691 3.71 %
Investment securities (3)
9,839,422 38,338 1.56 %9,070,185 39,188 1.73 %8,325,217 51,684 2.48 %
Other interest earning assets1,380,317 1,607 0.47 %1,062,840 1,593 0.61 %765,848 2,908 1.53 %
Total interest earning assets34,216,303 245,885 2.88 %33,682,334 249,602 2.98 %32,625,749 272,283 3.35 %
Allowance for credit losses(215,151)(254,438)(254,396)
Non-interest earning assets1,732,676 1,724,176 1,976,398 
Total assets$35,733,828 $35,152,072 $34,347,751 
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits$3,069,945 $2,594 0.34 %$2,942,874 $2,774 0.38 %$2,448,545 $4,722 0.78 %
Savings and money market deposits13,541,237 11,307 0.33 %12,793,019 12,127 0.38 %10,450,310 17,447 0.67 %
Time deposits3,380,582 3,415 0.41 %4,330,781 7,475 0.70 %7,096,097 28,018 1.59 %
Total interest bearing deposits19,991,764 17,316 0.35 %20,066,674 22,376 0.45 %19,994,952 50,187 1.01 %
Federal funds purchased— — — %8,000 0.15 %119,835 32 0.11 %
FHLB and PPPLF borrowings2,873,922 16,922 2.36 %3,072,717 17,558 2.32 %4,961,376 21,054 1.71 %
Notes and other borrowings721,753 9,252 5.13 %722,305 9,252 5.12 %493,278 6,168 5.00 %
Total interest bearing liabilities23,587,439 43,490 0.74 %23,869,696 49,189 0.83 %25,569,441 77,441 1.22 %
Non-interest bearing demand deposits8,163,879 7,491,249 5,313,009 
Other non-interest bearing liabilities851,044 746,973 820,439 
Total liabilities32,602,362 32,107,918 31,702,889 
Stockholders' equity3,131,466 3,044,154 2,644,862 
Total liabilities and stockholders' equity$35,733,828 $35,152,072 $34,347,751 
Net interest income$202,395 $200,413 $194,842 
Interest rate spread2.14 %2.15 %2.13 %
Net interest margin2.37 %2.39 %2.39 %
(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $3.4 million, $3.5 million and $3.8 million for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively. The tax-equivalent adjustment for tax-exempt investment securities was $0.7 million for both the three months ended June 30, 2021 and March 31, 2021 and $0.8 million for the three months ended June 30, 2020.
(2)Annualized.
(3)     At fair value except for securities held to maturity.    
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Six Months Ended June 30,
 20212020
 Average
Balance
Interest (1)
Yield/
Rate (1)(2)
Average
Balance
Interest (1)
Yield/
Rate
(1)(2)
Assets:
Interest earning assets:      
Loans$23,271,410 $414,761 3.58 %$23,192,374 $455,799 3.94 %
Investment securities (3)
9,456,929 77,525 1.64 %8,216,433 108,635 2.64 %
Other interest earning assets1,222,456 3,200 0.53 %706,238 6,628 1.89 %
Total interest earning assets33,950,795 495,486 2.93 %32,115,045 571,062 3.57 %
Allowance for credit losses(234,686)(196,619)
Non-interest earning assets1,728,449 1,863,074 
Total assets$35,444,558 $33,781,500 
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits$3,006,760 $5,368 0.36 %$2,311,086 $11,681 1.02 %
Savings and money market deposits13,169,195 23,434 0.36 %10,431,256 55,203 1.06 %
Time deposits3,853,057 10,890 0.57 %7,303,083 66,125 1.82 %
Total interest bearing deposits20,029,012 39,692 0.40 %20,045,425 133,009 1.33 %
Federal funds purchased3,978 0.10 %106,951 399 0.75 %
FHLB and PPPLF borrowings2,972,770 34,480 2.34 %4,688,102 46,138 1.98 %
Notes and other borrowings722,028 18,505 5.13 %461,188 11,458 4.97 %
Total interest bearing liabilities23,727,788 92,679 0.79 %25,301,666 191,004 1.52 %
Non-interest bearing demand deposits7,829,422 4,840,781 
Other non-interest bearing liabilities799,297 784,770 
Total liabilities32,356,507 30,927,217 
Stockholders' equity3,088,051 2,854,283 
Total liabilities and stockholders' equity$35,444,558 $33,781,500 
Net interest income$402,807 $380,058 
Interest rate spread2.14 %2.05 %
Net interest margin2.38 %2.37 %
(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $6.9 million and $7.5 million for the six months ended June 30, 2021 and 2020, respectively. The tax-equivalent adjustment for tax-exempt investment securities was $1.4 million and $1.6 million for the six months ended June 30, 2021 and 2020, respectively.
(2)Annualized.
(3)     At fair value except for securities held to maturity.    
The amount of tax-equivalent net interest income has exhibited an increasing trend over the three and six month periods presented above. Both average yields on interest earning assets and average rates paid on interest bearing liabilities have been declining, reflecting the macro interest rate environment and ongoing initiatives to reduce deposit costs and improve the mix of deposits. Notably, average interest earning assets have consistently increased, while average interest bearing liabilities have declined, contributing to the increasing trend in net interest income.
Three months ended June 30, 2021 compared to the immediately preceding three months ended March 31, 2021
Net interest income, calculated on a tax-equivalent basis, was $202.4 million for the three months ended June 30, 2021 compared to $200.4 million for the three months ended March 31, 2021, an increase of $2.0 million. Tax-equivalent interest income and interest expense decreased by $3.7 million and $5.7 million, respectively. The decrease in interest income resulted primarily from declines in average loans and in the yield on investment securities. Declines in interest expense reflected decreases in the rate paid on interest bearing deposits and in average interest bearing liabilities, as average non-interest bearing demand deposits continued to grow.
The net interest margin, calculated on a tax-equivalent basis, was 2.37% for the three months ended June 30, 2021, compared to 2.39% for the three months ended March 31, 2021. The net interest margin for the three months ended June 30, 2021 was negatively impacted by elevated levels of liquidity, reflected in higher levels of cash as well as deployment of liquidity into the investment portfolio as loan production lagged deposit growth.
Offsetting factors impacting the net interest margin for the three months ended June 30, 2021 compared to the immediately preceding quarter ended March 31, 2021 included:
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The average rate paid on interest bearing deposits decreased to 0.35% for the three months ended June 30, 2021, from 0.45% for the three months ended March 31, 2021. This decline reflected continued initiatives taken to lower rates paid on deposits including the re-pricing of term deposits.
The tax-equivalent yield on investment securities decreased to 1.56% for the three months ended June 30, 2021 from 1.73% for the three months ended March 31, 2021. This decrease resulted from the impact of purchases of lower-yielding securities in the current rate environment, coupled with amortization, maturities and prepayment of securities purchased in a higher rate environment. Accounting adjustments related to faster prepayment speeds of securities purchased at a premium negatively impacted the yield on investment securities for the quarter ended June 30, 2021 by approximately 0.10%.
The tax-equivalent yield on loans increased to 3.59% for the three months ended June 30, 2021, from 3.58% for the three months ended March 31, 2021. Accelerated amortization of origination fees on PPP loans that were partially or fully forgiven during the quarter impacted the yield on loans by approximately 0.11% for the three months ended June 30, 2021, compared to 0.06% for the three months ended March 31, 2021. Factoring out the impact of accelerated amortization of PPP origination fees, the yield on loans for the three months ended June 30, 2021 decreased by 0.04% compared to the immediately preceding quarter.
Average interest bearing liabilities declined by $282 million quarter-over-quarter and average non-interest bearing demand deposits increased by $673 million, positively impacting the net interest margin.
Three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020
Net interest income, calculated on a tax-equivalent basis, was $202.4 million for the three months ended June 30, 2021, compared to $194.8 million for the three months ended June 30, 2020, an increase of $7.6 million. Net interest income, calculated on a tax-equivalent basis, was $402.8 million for the six months ended June 30, 2021, compared to $380.1 million for the six months ended June 30, 2020, an increase $22.7 million. The changes in net interest income were comprised of decreases in tax-equivalent interest income and interest expense of $26.4 million and $75.6 million and decreases of $34.0 million and $98.3 million for the three and six months ended June 30, 2021, respectively, compared to the three and six months ended June 30, 2020.
Decreases in tax-equivalent interest income for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 resulted from the impact on asset portfolio yields of declines in market interest rates in early 2020, leading to runoff of assets originated in a higher rate environment and origination of assets at lower prevailing rates. These declines in yields were partially offset by increases in the average balance of investment securities. Average loans increased marginally for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, but declined for the comparative three month periods. Declines in interest expense also reflected the impact of decreases in market interest rates, our strategy focused on lowering the cost of deposits and improving the deposit mix and declines in average interest bearing liabilities.
The net interest margin, calculated on a tax-equivalent basis, was 2.37% for the three months ended June 30, 2021, compared to 2.39% for the three months ended June 30, 2020. The net interest margin, calculated on a tax-equivalent basis, was 2.38% for the six months ended June 30, 2021, compared to 2.37% for the six months ended June 30, 2020. The reduction in cost of interest bearing liabilities outpaced the decline in the yield on interest earning assets for both the three and six months ended June 30, 2021 compared to the comparable periods in 2020.
Offsetting factors impacting the net interest margin for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 included:
The tax-equivalent yield on loans decreased to 3.59% and 3.58% for the three and six months ended June 30, 2021, from 3.71% and 3.94% for the three and six months ended June 30, 2020. Accelerated amortization of origination fees on PPP loans that were partially or fully forgiven positively impacted the yield on loans by approximately 0.11% and 0.10% for the three and six months ended June 30, 2021, respectively.
The tax-equivalent yield on investment securities declined to 1.56% and 1.64% from 2.48% and 2.64% for the three and six months ended June 30, 2021 and the three and six months ended June 30, 2020, respectively. Accounting adjustments related to faster prepayment speeds of securities purchased at a premium negatively impacted the yield on investment securities for the quarter ended June 30, 2021 by approximately 0.07% when compared to the three months ended June 30, 2020.
The average rate paid on interest bearing deposits decreased to 0.35% and 0.40% for the three and six months ended June 30, 2021, from 1.01% and 1.33% for the three and six months ended June 30, 2020. This decrease reflected
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declines in market interest rates and continued execution of initiatives taken to lower rates paid on deposits, including the re-pricing of term deposits.
Average interest bearing liabilities declined by $2.0 billion and $1.6 billion, respectively for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020. Average non-interest bearing demand deposits increased by $2.9 billion and $3.0 billion for those same comparative periods. These changes positively impacted the net interest margin.
Provision for Credit Losses
The provision for credit losses is a charge to earnings required to maintain the ACL at a level consistent with management’s estimate of expected credit losses on financial assets carried at amortized cost at the balance sheet date. The amount of the provision is impacted by changes in current economic conditions as well as in management's reasonable and supportable economic forecast, loan originations and runoff, changes in portfolio mix, risk rating migration and portfolio seasoning, changes in specific reserves, changes in expected prepayment speeds and other assumptions. The provision for credit losses also includes amounts related to off-balance sheet credit exposures and may include amounts related to accrued interest receivable and AFS debt securities.
The following table presents the components of the provision for credit losses for the periods indicated (in thousands):
Three Months Ended June 30, 2021Six Months Ended June 30, 2021
Amount related to funded portion of loans$(27,663)$(53,969)
Amount related to off-balance sheet credit exposures129 (919)
Amount related to accrued interest receivable— (271)
Amount related to AFS debt securities— (364)
Total recovery of credit losses$(27,534)$(55,523)
The recovery of credit losses for the three and six months ended June 30, 2021 was largely driven by improvements in current and forecasted economic conditions. For the three and six months ended June 30, 2020, the Company recorded a provision for credit losses of $25.4 million and $150.8 million, respectively. The provision for credit losses for the three and six months ended June 30, 2020 was impacted by deteriorating current and forecasted economic conditions related to the onset of the COVID-19 pandemic.
The evolving COVID-19 situation and its actual and forecasted impact on economic conditions have led and may continue to lead to volatility in the provision for credit losses.
The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. See “Analysis of the Allowance for Credit Losses” below for more information about how we determine the appropriate level of the ACL.
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Non-Interest Income
The following table presents a comparison of the categories of non-interest income for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Deposit service charges and fees$5,417 $3,701 $10,317 $7,887 
Gain on sale of loans:
Guaranteed portions of SBA loans96375 541 1,569 
GNMA early buyout loans2,138 3,951 3,447 6,206 
Other— — — 17 
Gain on sale of loans, net2,234 4,326 3,988 7,792 
Gain on investment securities:
Net realized gains on sale of securities AFS2,841 5,723 6,808 7,253 
Net unrealized gains (losses) on marketable equity securities1,314 1,113 (288)(3,870)
Gain on investment securities, net4,155 6,836 6,520 3,383 
Lease financing13,522 16,150 26,010 31,631 
Other non-interest income7,429 7,338 16,218 10,956 
$32,757 $38,351 $63,053 $61,649 
The increase in deposit service charges for the three and six months ended June 31, 2021 compared to 2020 resulted primarily from higher treasury management fee income, related to our BankUnited 2.0 initiatives.
The decline in gain on sale of GNMA early buyout loans for the three and six months ended June 30, 2021 compared to the comparable period of the prior year related to lower levels of re-pooling activity. The decrease in gains on the sale of guaranteed portions of SBA loans for the three and six months ended June 30, 2021 compared to 2020 was a result of declining origination volume of SBA loans as resources were re-directed to the PPP.
The decrease in income from lease financing for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 was primarily attributed to the increase in operating lease equipment off-lease and re-leasing of assets at lower rates.
The most significant factor leading to the increase in other non-interest income for the six months ended June 30, 2021 compared to 2020 was increased revenue from our customer derivative program.
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Non-Interest Expense
The following table presents the components of non-interest expense for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Employee compensation and benefits$56,459 $48,877 $115,747 $107,764 
Occupancy and equipment11,492 11,901 23,367 24,270 
Deposit insurance expense4,222 4,806 11,672 9,209 
Professional fees2,139 3,131 4,051 6,335 
Technology and telecommunications16,851 14,025 32,592 26,621 
Depreciation of operating lease equipment12,834 12,219 25,051 24,822 
Other non-interest expense14,455 11,411 29,193 26,217 
Total non-interest expense$118,452 $106,370 $241,673 $225,238 
Employee compensation and benefits
Employee compensation and benefits increased by $7.6 million and $8.0 million for the three and six months ended June 30, 2021, respectively compared to the comparable periods of 2020, primarily due to higher variable compensation accruals related to improved overall operating results for 2021 as well as the impact of a higher stock price on expense related to liability classified share awards.
Technology and telecommunications
The increases in technology and telecommunications are reflective of investments in digital, payments and data analytics capabilities and in the infrastructure to support cloud migration.
Income Taxes
See Note 5 to the consolidated financial statements for information about income taxes.
Analysis of Financial Condition
Average interest-earning assets increased $1.8 billion to $34.0 billion for the six months ended June 30, 2021 from $32.1 billion for the six months ended June 30, 2020. This increase was driven by a $1.2 billion increase in the average balance of investment securities and a $516 million increase in other interest earning assets, primarily cash and cash equivalents. Average interest bearing liabilities declined by $1.6 billion for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, while average non-interest bearing deposits increased by $3.0 billion to $7.8 billion for the six months ended June 30, 2021.
Cash and cash equivalents increased by $498 million to $895 million at June 30, 2021, compared to $398 million at December 31, 2020 while investment securities grew by $1.1 billion and total loans declined by $981 million. Total deposits increased by $1.1 billion offset by a decrease of $622 million in borrowings.

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Investment Securities
The following table shows the amortized cost and carrying value, which, with the exception of investment securities held to maturity, is fair value, of investment securities at the dates indicated:
June 30, 2021December 31, 2020
 Amortized
Cost
Carrying ValueAmortized
Cost
Carrying Value
U.S. Treasury securities$158,977 $156,637 $79,919 $80,851 
U.S. Government agency and sponsored enterprise residential MBS2,197,562 2,215,440 2,389,450 2,405,570 
U.S. Government agency and sponsored enterprise commercial MBS831,726 835,588 531,724 539,354 
Private label residential MBS and CMOs2,104,579 2,111,727 982,890 998,603 
Private label commercial MBS(1)
2,579,963 2,594,024 2,514,271 2,526,354 
Single family rental real estate-backed securities608,269 617,445 636,069 650,888 
Collateralized loan obligations986,214 982,267 1,148,724 1,140,274 
Non-mortgage asset-backed securities172,791 176,506 246,597 253,261 
State and municipal obligations209,791 228,625 213,743 235,709 
SBA securities216,682 215,634 233,387 231,545 
Investment securities held to maturity10,000 10,000 10,000 10,000 
$10,076,554 10,143,893 $8,986,774 9,072,409 
Marketable equity securities88,142 104,274 
$10,232,035 $9,176,683 
(1)Amortized cost is net of ACL totaling $0.4 million at December 31, 2020.
Our investment strategy has focused on insuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managing interest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significant portion of the portfolio in high quality liquid securities including U.S. Treasury and U.S. Government Agency and sponsored enterprise securities. Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We have also invested in highly rated structured products, including private-label commercial and residential MBS, collateralized loan obligations, single family rental real estate-backed securities and non-mortgage asset-backed securities that, while somewhat less liquid, provide us with attractive yields. Relatively short effective portfolio duration helps mitigate interest rate risk. Based on the Company’s assumptions, the estimated weighted average life of the investment portfolio as of June 30, 2021 was 4.2 years and the effective duration of the investment portfolio as of June 30, 2021 was 1.6 years.
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The investment securities available for sale portfolio was in a net unrealized gain position of $67.3 million at June 30, 2021, with aggregate fair value equal to 101% of amortized cost. Net unrealized gains at June 30, 2021 included $94.3 million of gross unrealized gains and $27.0 million of gross unrealized losses. Investment securities available for sale in unrealized loss positions at June 30, 2021 had an aggregate fair value of $3.2 billion. The ratings distribution of our AFS securities portfolio at June 30, 2021 is depicted in the chart below:
bku-20210630_g1.jpg
We evaluate the credit quality of individual securities in the portfolio quarterly to determine whether we expect to recover the amortized cost basis of the investments in unrealized loss positions. This evaluation considers, but is not necessarily limited to, the following factors, the relative significance of which varies depending on the circumstances pertinent to each individual security:
Whether we intend to sell the security prior to recovery of its amortized cost basis;
Whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis;
The extent to which fair value is less than amortized cost;
Adverse conditions specifically related to the security, an industry or geographic area;
Changes in the financial condition of the issuer or underlying loan obligors;
The payment structure and remaining payment terms of the security, including levels of subordination or over-collateralization;
Failure of the issuer to make scheduled payments;
Changes in credit ratings;
Relevant market data;
Estimated prepayments, defaults, and the value and performance of underlying collateral at the individual security level.
We do not intend to sell securities in significant unrealized loss positions at June 30, 2021. Based on an assessment of our liquidity position and internal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities in significant unrealized loss positions prior to recovery of amortized cost basis, which may be at maturity.
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U.S. Government, Government Agency and Government Sponsored Enterprise Securities
The timely payment of principal and interest on securities issued by the U.S. government, U.S. government agencies and U.S. government sponsored enterprises is explicitly or implicitly guaranteed by the U.S. Government. As such, there is an assumption of zero credit loss and the Company expects to recover the entire amortized cost basis of these securities.
Private Label Securities:
None of the impaired private label securities had missed principal or interest payments or had been downgraded by a NRSRO at June 30, 2021. The Company performed an analysis comparing the present value of cash flows expected to be collected to the amortized cost basis of impaired private label securities. This analysis was based on a scenario that we believe to be more severe than our reasonable and supportable economic forecast at June 30, 2021, and incorporated assumptions about voluntary prepayment rates, collateral defaults, delinquencies, other collateral quality measures, loss severity, recovery lag and other relevant factors. Our analysis also considered the structural characteristics of each security and the level of credit enhancement provided by that structure. Based on the results of this analysis, none of the private label AFS securities in unrealized loss positions were projected to sustain credit losses at June 30, 2021.
At June 30, 2021, the private label portfolio segments with the largest unrealized losses were the CMBS and CLO segments. The following table presents the distribution of third-party ratings and subordination levels compared to average internal stress scenario losses for the private label CMBS and CLOs at June 30, 2021:
SubordinationWeighted Average Stress Scenario Loss
RatingPercent of TotalMinimumMaximumAverage
Private label CMBSAAA88.3 %29.4 %49.8 %38.0 %9.1 %
AA4.7 %44.3 %44.3 %44.3 %9.8 %
A7.0 %24.5 %32.4 %30.2 %10.1 %
Weighted average100.0 %29.7 %48.3 %37.7 %9.2 %
CLOsAAA71.8 %42.9 %61.2 %48.0 %15.0 %
AA21.1 %33.1 %40.7 %36.3 %15.2 %
A7.1 %24.7 %29.5 %26.5 %15.2 %
Weighted average100.0 %39.5 %54.6 %44.0 %15.1 %
Our June 30, 2021 analysis projected weighted average collateral losses for impaired securities in the private label residential MBS and CMO category of 2% compared to weighted average credit support of 15%. For impaired single family rental real estate-backed securities, our analysis projected weighted average collateral losses of 19% compared to weighted average credit support of 52%. As of June 30, 2021, all of the impaired securities in these categories were externally rated AAA.
For further discussion of our analysis of impaired investment securities AFS for credit loss impairment see Note 3 to the consolidated financial statements.
We use third-party pricing services to assist us in estimating the fair value of investment securities. We perform a variety of procedures to ensure that we have a thorough understanding of the methodologies and assumptions used by the pricing services including obtaining and reviewing written documentation of the methods and assumptions employed, conducting interviews with valuation desk personnel and reviewing model results and detailed assumptions used to value selected securities as considered necessary. Our classification of prices within the fair value hierarchy is based on an evaluation of the nature of the significant assumptions impacting the valuation of each type of security in the portfolio. We have established a robust price challenge process that includes a review by our treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from our expectations based on recent observed trading activity and other information available in the marketplace that would impact the value of the security is challenged. Responses to the price challenges, which generally include specific information about inputs and assumptions incorporated in the valuation and their sources, are reviewed in detail. If considered necessary to resolve any discrepancies, a price will be obtained from additional independent valuation sources. We do not typically adjust the prices provided, other than through this established challenge process. Our primary pricing services utilize observable inputs when available, and employ unobservable inputs and proprietary models only when observable inputs are not available. As a matter of course, the services validate prices by
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comparison to recent trading activity whenever such activity exists. Quotes obtained from the pricing services are typically non-binding.
We also have a quarterly price validation process to assess the propriety of the pricing methodologies utilized by our primary pricing services by independently verifying the prices of a sample of securities in the portfolio. Sample sizes vary based on the type of security being priced, with higher sample sizes applied to more difficult to value security types. Verification procedures may consist of obtaining prices from an additional outside source. We have established acceptable percentage deviations from the price provided by the initial pricing source. If deviations fall outside the established parameters, we will obtain and evaluate more detailed information about the assumptions and inputs used by each pricing source or, if considered necessary, employ an additional valuation source to price the security in question. Pricing issues identified through this evaluation are addressed with the applicable pricing service and methodologies or inputs are revised as determined necessary. Depending on the results of the validation process, sample sizes may be extended for particular classes of securities. Results of the validation process are reviewed by the treasury front office and by senior management.
The majority of our investment securities are classified within level 2 of the fair value hierarchy. U.S. Treasury securities and marketable equity securities are classified within level 1 of the hierarchy. We continue to monitor the impact of the COVID-19 pandemic on markets. While, particularly at the onset of the pandemic, we observed increased volatility and dislocation, we believe the fiscal and monetary response to the crisis has been effective in supporting liquidity and stabilizing markets. To date, circumstances have not led to a change in the categorization of our fair value estimates within the fair value hierarchy.
For additional discussion of the fair values of investment securities, see Note 9 to the consolidated financial statements.
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The following table shows the weighted average prospective yields, categorized by scheduled maturity, for AFS investment securities as of June 30, 2021. Scheduled maturities have been adjusted for anticipated prepayments when applicable. Yields on tax-exempt securities have been calculated on a tax-equivalent basis, based on a federal income tax rate of 21%:
 Within One YearAfter One Year
Through Five Years
After Five Years
Through Ten Years
After Ten YearsTotal
U.S. Treasury securities0.89 %— %— %— %0.89 %
U.S. Government agency and sponsored enterprise residential MBS0.82 %0.81 %0.72 %0.67 %0.77 %
U.S. Government agency and sponsored enterprise commercial MBS1.59 %1.79 %1.03 %1.15 %1.12 %
Private label residential MBS and CMOs1.37 %1.22 %1.75 %2.33 %1.29 %
Private label commercial MBS2.20 %1.87 %2.05 %2.49 %1.94 %
Single family rental real estate-backed securities2.85 %2.14 %2.32 %— %2.18 %
Collateralized loan obligations1.59 %1.83 %1.79 %— %1.81 %
Non-mortgage asset-backed securities2.81 %2.61 %2.04 %— %2.66 %
State and municipal obligations2.91 %3.86 %4.61 %4.06 %3.99 %
SBA securities1.31 %1.26 %1.18 %1.07 %1.24 %
1.41 %1.60 %1.30 %1.32 %1.51 %
Loans
The loan portfolio comprises the Company’s primary interest-earning asset. The following table shows the composition of the loan portfolio at the dates indicated (dollars in thousands):
June 30, 2021December 31, 2020
TotalPercent of TotalTotalPercent of Total
Residential and other consumer loans$7,076,274 30.9 %$6,348,222 26.6 %
Multi-family1,256,711 5.5 %1,639,201 6.9 %
Non-owner occupied commercial real estate4,724,183 20.7 %4,963,273 20.8 %
Construction and land218,634 1.0 %293,307 1.2 %
Owner occupied commercial real estate1,960,900 8.6 %2,000,770 8.4 %
Commercial and industrial4,205,795 18.4 %4,447,383 18.6 %
PPP491,960 2.1 %781,811 3.3 %
Pinnacle1,046,537 4.6 %1,107,386 4.6 %
Bridge - franchise finance463,874 2.0 %549,733 2.3 %
Bridge - equipment finance421,939 1.8 %475,548 2.0 %
Mortgage warehouse lending1,018,267 4.4 %1,259,408 5.3 %
Total loans22,885,074 100.0 %23,866,042 100.0 %
Allowance for credit losses(175,642)(257,323)
Loans, net$22,709,432 $23,608,719 
For the six months ended June 30, 2021, total loans declined by $981 million. Excluding PPP, loans declined by $691 million for the six months.
Growth in residential and other consumer loans for the six months ended June 30, 2021 totaled $728 million, including $443 million in GNMA early buyout loans. In the aggregate, excluding PPP, commercial loans declined by $1.4 billion for the six months ended June 30, 2021 as runoff continued to exceed new production. Line utilization remained below historical levels and accelerated prepayment activity continued. MWL line utilization declined to 52% at June 30, 2021 compared to 62% at December 31, 2020.
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PPP loans declined by $290 million during the six months ended June 30, 2021. Loans under the First Draw Program declined by $573 million, resulting primarily from full or partial forgiveness. PPP loans under the Second Draw Program totaling $283 million were originated during the six months ended June 30, 2021.
For the three months ended June 30, 2021 total loans excluding PPP loans declined by $56 million. Residential and other consumer loans grew by $494 million and commercial and industrial loans, including owner-occupied commercial real estate, grew by $186 million. The remaining commercial portfolio segments showed net declines for the quarter.
Residential mortgages and other consumer loans
The following table shows the composition of residential and other consumer loans at the dates indicated (in thousands):
June 30, 2021December 31, 2020
1-4 single family residential$5,206,766 $4,922,836 
Government insured residential1,863,723 1,419,074 
Other consumer loans5,785 6,312 
$7,076,274 $6,348,222 
The 1-4 single family residential loan portfolio, excluding government insured residential loans, is primarily comprised of loans purchased through established correspondent channels. 1-4 single family residential mortgage loans are primarily closed-end, first lien jumbo mortgages for the purchase or re-finance of owner occupied property. The loans have terms ranging from 10 to 30 years, with either fixed or adjustable interest rates. At June 30, 2021, $502 million or 10% were secured by investor-owned properties.
The Company acquires non-performing FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations (collectively, "government insured pool buyout loans" or "buyout loans"). Buyout loans that re-perform, either through modification or self-cure, may be eligible for re-securitization. The Company and the servicer share in the economics of the sale of these loans into new securitizations. The balance of buyout loans totaled $1.8 billion at June 30, 2021. The Company is not the servicer of these loans.
The following charts present the distribution of the 1-4 single family residential mortgage portfolio at the dates indicated:
bku-20210630_g2.jpg

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The following table presents the five states with the largest geographic concentrations of 1-4 single family residential loans, excluding government insured residential loans, at the dates indicated (dollars in thousands):
June 30, 2021December 31, 2020
TotalPercent of TotalTotalPercent of Total
California$1,651,551 31.7 %$1,541,779 31.3 %
New York1,150,212 22.1 %1,084,143 22.0 %
Florida479,256 9.2 %518,877 10.5 %
Virginia235,750 4.5 %196,641 4.0 %
New Jersey172,824 3.3 %160,276 3.3 %
Others1,517,173 29.2 %1,421,120 28.9 %
$5,206,766 100.0 %$4,922,836 100.0 %
Commercial loans and leases
Commercial loans include commercial and industrial loans and leases, loans secured by owner-occupied commercial real-estate, multi-family properties and other income-producing non-owner occupied commercial real estate, a limited amount of construction and land loans, SBA loans, mortgage warehouse lines of credit, PPP loans, municipal loans and leases originated by Pinnacle and franchise and equipment finance loans and leases originated by Bridge.
The following charts present the distribution of the commercial loan portfolio at the dates indicated (dollars in millions):
bku-20210630_g3.jpg
Commercial real estate loans include term loans secured by non-owner occupied income producing properties including rental apartments, mixed-use properties, industrial properties, retail shopping centers, free-standing single-tenant buildings, office buildings, warehouse facilities, hotels, real estate secured lines of credit, as well as credit facilities to institutional real estate entities such as REITs and commercial real estate investment funds.
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The following table presents the distribution of commercial real estate loans by property type along with weighted average DSCRs and LTVs at June 30, 2021 (dollars in thousands):
Amortized CostPercent of TotalFLNew York Tri StateOtherWeighted Average DSCRWeighted Average LTV
Office$1,985,933 31 %60 %25 %15 %2.3262.6 %
Multifamily1,361,226 22 %40 %55 %%1.7259.0 %
Retail1,225,933 20 %54 %39 %%1.5368.7 %
Warehouse/Industrial861,098 14 %64 %23 %13 %2.2756.4 %
Hotel593,852 10 %76 %15 %%1.1756.7 %
Other171,486 %38 %32 %30 %1.9056.2 %
$6,199,528 100 %56 %35 %%1.9061.4 %
DSCRs and LTVs in the table above are based on the most recent information available, which in some cases may not be fully reflective of the ultimate impact of the COVID-19 pandemic on borrowers' financial condition or property values.
The Company’s commercial real estate underwriting standards generally provide for loan terms of five to seven years, with amortization schedules of no more than thirty years. LTV ratios are typically limited to no more than 75%. Construction and land loans, included by property type in the table above, represented 1.0% of the total loan portfolio at June 30, 2021.
Included in the table above are approximately $163 million of mixed-use properties in New York, consisting of $86 million categorized as multi-family, $58 million categorized as retail and $19 million categorized as office.
The New York legislature has enacted a number of rent regulation reform measures that generally have the impact of limiting landlords' ability to increase rents on stabilized units and to convert stabilized units to market rate units. The New York multi-family portfolio included $577 million of loans collateralized by properties with some or all of the units subject to rent regulation at June 30, 2021, substantially all of which were stabilized properties.
The following tables present the distribution of stabilized rent-regulated multi-family loans, by DSCR and LTV at June 30, 2021 (in thousands):
DSCR
Less than 1.00$167,370 
1.00 - 1.24176,703 
1.25 - 1.50116,578 
1.51 or greater76,480 
$537,131 
LTV
Less than 50%$127,096 
50% - 65%137,475 
66% - 75%90,531 
More than 75%182,029 
$537,131 

The LTVs in the table above are based on the most recent appraisal obtained, which may not be fully reflective of changes in valuations that may result from the impact of the rent regulation reforms, or of the COVID-19 pandemic. Loans with DSCR less than 1.00 may be those with temporary rent deferments, unit vacancies or increases in expenses exceeding rental receipts, such as real estate taxes. Certain type of ancillary income are excluded from the DSCR calculations.
Commercial and industrial loans are typically made to small, middle market and larger corporate businesses and not-for-profit entities and include equipment loans, secured and unsecured working capital facilities, formula-based loans, trade finance, SBA product offerings and business acquisition finance credit facilities. These loans may be structured as term loans, typically with maturities of five to seven years, or revolving lines of credit which may have multi-year maturities. The Bank also provides financing to state and local governmental entities generally within our geographic markets. Commercial loans included shared national credits totaling $2.7 billion at June 30, 2021, the majority of which were relationship based loans to
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borrowers in Florida and New York. The Bank makes loans secured by owner-occupied commercial real estate that typically have risk profiles more closely aligned with that of commercial and industrial loans than with other types of commercial real estate loans.
The following table presents the exposure in the commercial and industrial portfolio by industry, including $2.0 billion of owner-occupied commercial real estate loans, by industry at June 30, 2021 (in thousands):
Amortized CostPercent of Total
Finance and Insurance$939,604 15.2 %
Educational Services695,388 11.3 %
Wholesale Trade601,045 9.7 %
Transportation and Warehousing458,358 7.4 %
Health Care and Social Assistance405,748 6.6 %
Manufacturing350,013 5.7 %
Information388,849 6.3 %
Retail Trade305,077 4.9 %
Accommodation and Food Services250,342 4.1 %
Real Estate and Rental and Leasing312,119 5.1 %
Public Administration231,939 3.8 %
Professional, Scientific, and Technical Services223,364 3.6 %
Other Services (except Public Administration)236,068 3.8 %
Construction208,839 3.4 %
Administrative and Support and Waste Management165,660 2.7 %
Arts, Entertainment, and Recreation172,630 2.8 %
Utilities163,878 2.7 %
Other57,774 0.9 %
$6,166,695 100.0 %
Through its commercial lending subsidiaries, Pinnacle and Bridge, the Bank provides equipment and franchise financing on a national basis using both loan and lease structures. Pinnacle provides essential-use equipment financing to state and local governmental entities directly and through vendor programs and alliances. Pinnacle offers a full array of financing structures including equipment lease purchase agreements and direct (private placement) bond re-fundings and loan agreements. Bridge has two operating divisions. The franchise finance division offers franchise acquisition, expansion and equipment financing, typically to experienced operators in well-established concepts. The franchise finance portfolio is made up primarily of quick service restaurant and fitness concepts comprising 58% and 35% of the portfolio, respectively. The equipment finance division provides primarily transportation equipment financing through a variety of loan and lease structures.
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The following table presents the franchise portfolio by concept at June 30, 2021:
Amortized CostPercent of Bridge -Franchise Finance
Restaurant concepts:
Burger King$58,559 12.6 %
Popeyes19,616 4.2 %
Dunkin Donuts19,528 4.2 %
Jimmy John's16,834 3.6 %
Domino's8,273 1.8 %
Other147,017 31.7 %
$269,827 58.1 %
Non-restaurant concepts:
Planet Fitness$92,912 20.0 %
Orange Theory Fitness70,129 15.1 %
Other31,006 6.8 %
194,047 41.9 %
$463,874 100.0 %

The Company has originated PPP loans under both the First and Second Draw Programs. These loans bear interest at 1% and are guaranteed as to principal and interest by the SBA. PPP loans have terms of 2 and 5 years under the First and Second Draw Programs, respectively, and are eligible for earlier forgiveness under the terms of the PPP in prescribed circumstances. The following table summarizes PPP loan balances at June 30, 2021, and the amount of interest income related to accelerated amortization of origination fees on loans that were partially or fully forgiven, under each program during the three and six months ended June 30, 2021 (in thousands):
June 30, 2021Fees Recognized On Forgiveness
UPBDeferred Origination FeesAmortized CostThree Months Ended June 30, 2021Six Months Ended June 30, 2021
First Draw Program$210,293 $(1,079)$209,214 $4,512 $7,082 
Second Draw Program291,473 (8,727)282,746 — — 
$501,766 $(9,806)$491,960 $4,512 $7,082 
Geographic Concentrations
The Company's commercial and commercial real estate portfolios are concentrated in Florida and the Tri-state area. 56% and 35% of commercial real estate loans were secured by collateral located in Florida and the Tri-state area, respectively; while 37% and 22% of all other commercial loans were to borrowers in Florida and the Tri-state area, respectively.
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The following table presents the five states with the largest concentration of commercial loans and leases originated through Bridge, Pinnacle and our mortgage warehouse finance unit at the dates indicated (dollars in thousands):
June 30, 2021December 31, 2020
TotalPercent of TotalTotalPercent of Total
California$500,825 17.0 %$609,419 18.0 %
NY Tri State Area278,194 9.4 %545,458 16.1 %
Florida285,828 9.7 %330,587 9.7 %
Ohio225,538 7.6 %186,443 5.5 %
North Carolina176,885 6.0 %194,558 5.7 %
All Others1,483,347 50.3 %1,525,610 45.0 %
$2,950,617 100.0 %$3,392,075 100.0 %
Operating lease equipment, net
Operating lease equipment, net of accumulated depreciation totaled $668 million at June 30, 2021, including off-lease equipment, net of accumulated depreciation of $128 million. The portfolio consists primarily of railcars, non-commercial aircraft and other transport equipment. Our operating lease customers are North American commercial end users. We have a total of 5,070 railcars with a carrying value of $382 million at June 30, 2021, including hoppers, tank cars, boxcars, auto carriers, center beams and gondolas. The largest concentrations of rail cars were 2,402 hopper cars and 1,594 tank cars, primarily used to ship sand and petroleum products, respectively, for the energy industry.
The chart below presents operating lease equipment by type at the dates indicated:
bku-20210630_g4.jpg

At June 30, 2021, the breakdown of carrying values of operating lease equipment, excluding equipment off-lease, by the year leases are scheduled to expire was as follows (in thousands):
Years Ending December 31:
2021$23,683 
202240,797 
202375,170 
202435,514 
2025100,020 
Thereafter through 2034264,529 
$539,713 
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Asset Quality
Commercial Loans
We have a robust credit risk management framework, an experienced team to lead the workout and recovery process for the commercial and commercial real estate portfolios and a dedicated internal credit review function. In response to the COVID-19 pandemic, we have further enhanced our workout and recovery staffing and processes. Loan performance is monitored by our credit administration, portfolio management and workout and recovery departments. Generally, commercial relationships with balances in excess of defined thresholds are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. The defined thresholds range from $1 million to $3 million. Homogenous groups of smaller balance commercial loans may be monitored collectively. The credit quality and risk rating of commercial loans as well as our underwriting and portfolio management practices are regularly reviewed by our internal credit review department.
We believe internal risk rating is the best indicator of the credit quality of commercial loans. The Company utilizes a 16-grade internal asset risk classification system as part of its efforts to monitor and maintain commercial asset quality. The special mention rating is considered a transitional rating for loans exhibiting potential credit weaknesses that could result in deterioration of repayment prospects at some future date if not checked or corrected and that deserve management’s close attention. These borrowers may exhibit declining cash flows or revenues or increasing leverage. Loans with well-defined credit weaknesses that may result in a loss if the deficiencies are not corrected are assigned a risk rating of substandard. These borrowers may exhibit payment defaults, inadequate cash flows from current operations, operating losses, increasing balance sheet leverage, project cost overruns, unreasonable construction delays, exhausted interest reserves, declining collateral values, frequent overdrafts or past due real estate taxes. Loans with weaknesses so severe that collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors have not been charged off, are assigned an internal risk rating of doubtful. During 2020, risk ratings were re-evaluated for a substantial portion of the commercial portfolio, with a particular focus on portfolio segments we identified for enhanced monitoring and loans for which we granted temporary payment deferrals or modifications in light of the COVID-19 pandemic. We continue to closely monitor the risk rating of commercial loans in light of the evolving COVID-19 situation.
The following table summarizes the Company's commercial credit exposure, based on internal risk rating, at the dates indicated (dollars in thousands):
June 30, 2021March 31, 2021December 31, 2020
Amortized CostPercent of Commercial LoansAmortized CostPercent of Commercial LoansAmortized CostPercent of Commercial Loans
Pass$13,739,092 86.8 %$14,167,606 84.5 %$14,832,025 84.6 %
Special mention138,064 0.9 %420,331 2.5 %711,516 4.1 %
Substandard accruing1,684,666 10.7 %1,983,191 11.8 %1,758,654 10.0 %
Substandard non-accruing229,646 1.5 %189,589 1.1 %203,758 1.2 %
Doubtful17,332 0.1 %17,903 0.1 %11,867 0.1 %
$15,808,800 100.0 %$16,778,620 100.0 %$17,517,820 100.0 %
Our internal risk ratings at June 30, 2021 continued to be influenced by the impact of the COVID-19 pandemic and the measures and restrictions employed to contain the spread of the virus on the economy, our borrowers and the sectors in which they operate. Management has taken what we believe to be a proactive and objective approach to risk rating the commercial loan portfolio since the onset of the pandemic. The increase in levels of criticized and classified loans, particularly in the special mention and substandard accruing categories, over the course of 2020 was directly related to the impact of the COVID-19 pandemic. As expected given the trajectory of economic recovery, levels of criticized and classified loans have declined over the first six months of 2021, particularly during the second quarter. During the six months ended June 30, 2021, total criticized and classified loans declined by $616 million. During the quarter ended June 30, 2021 criticized and classified loans declined by $541.3 million or 21%, to $2.1 billion. However, substandard non-accruing loans increased by $40.1 million during the second quarter. This increase was primarily attributable to one $69 million commercial and industrial relationship. If the economic recovery and its impact on individual borrowers evolve in line with our current expectations and economic forecast, we would expect to see the level of criticized and classified loans continue to decline over the remainder of 2021. However, uncertainty remains around the future trajectory of the COVID-19 virus and the economic recovery. In light of that uncertainty, it is possible that criticized and classified loan levels may not decline or that they may increase.
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The following table provides additional information about special mention and substandard accruing loans, at the dates indicated (dollars in thousands). Non-performing loans are discussed further in the section entitled "Non-performing Assets" below.
June 30, 2021March 31, 2021December 31, 2020
Amortized Cost% of Loan SegmentAmortized Cost% of Loan SegmentAmortized Cost% of Loan Segment
Special mention:
CRE
Hotel$579 0.1 %$34,113 5.5 %$68,413 11.0 %
Retail21,763 1.8 %51,547 4.0 %86,935 6.4 %
Multi-family6,085 0.4 %37,345 2.5 %36,335 2.2 %
Office27,246 1.4 %3,973 0.2 %37,943 1.8 %
Industrial— — %1,047 0.1 %